All articles tagged with #bank supervision
Vice Chair Bowman discusses the importance of embracing technological innovation like blockchain and AI within the banking system, emphasizing a balanced, tailored regulatory approach that fosters innovation while managing risks, and highlights recent efforts to update supervisory frameworks and reduce reputational risk concerns to support the future of digital assets and financial technology.
The Federal Reserve Board announced it will no longer include reputational risk in its bank examination programs, replacing references to it with more specific financial risk discussions, while emphasizing the importance of strong risk management in banks.
The Federal Reserve's top supervisory official, Michael Barr, stated that bank regulators have been more aggressive in identifying and addressing issues at banks, particularly focusing on interest rate risk and commercial real estate exposure. The Fed is conducting additional exams at firms facing large unrealized losses and is closely monitoring banks nearing the $100 billion threshold for stricter oversight. Barr emphasized the need for supervisors to help banks focus on areas that matter most and mentioned the possibility of imposing temporary higher capital and liquidity requirements on banks facing risk management issues.
Vice Chair for Supervision Randal K. Quarles discussed the importance of bank supervision and the steps being taken to improve the speed, force, and agility of supervision following the failure of Silicon Valley Bank. He emphasized the goals and benefits of supervision, including promoting a safe and efficient banking system to support the economy, and highlighted the need for regulation and supervision to ensure that banks manage their risks prudently. Quarles outlined efforts to intensify supervision at the right pace, encourage timely supervisory action and escalation, and improve the agility of supervision, with a focus on addressing risks such as interest rate and liquidity risks, commercial real estate lending, and potential systemic risks.
The collapse of Silicon Valley Bank has brought attention to the relationship between the Federal Reserve Bank of San Francisco and the bank's former CEO, Greg Becker, who sat on the San Francisco Fed's board of directors. Critics are questioning whether the way the Fed has been organized for over a century makes sense today. The Fed's 12 reserve banks each have a nine-person board of directors, three of whom come from the banking industry. The boards have no say in bank supervision and serve mainly as advisers for the Fed bank's leadership.
The Federal Reserve has released a report on its oversight of Silicon Valley Bank, which collapsed last month, blaming the bank's leadership and its own overly cautious approach to supervision. The report also criticized directives from Randal Quarles, the Trump-appointed official who served as vice chair for supervision until late 2021, and the implementation of a bipartisan bank deregulation law passed by Congress in 2018. The findings are likely to lead to tougher rules on regional banks in particular, and Fed Chair Jerome Powell made clear he is backing efforts by regulatory chief Michael Barr to improve bank supervision.
The failure of Silicon Valley Bank (SVB) has raised questions about the effectiveness of bank supervision. Regulators had identified problems with SVB's risk management and exposure to rising interest rates and deposit flight, but were unable to force changes until it was too late. The failure of SVB and Signature Bank prompted an extraordinary government response to back the entire banking system. Regulators have no good answers for why all the evidence of excessive risk remained confined to confidential reports among bank supervisors, their bosses, and SVB management. The real work of bank supervision may take place in the shadows, but it doesn't work if policymakers don't act on what those supervisors learn.
The Federal Reserve's Vice Chair for Supervision, Michael Barr, blamed Silicon Valley Bank's collapse on poor internal management and excessive risk-taking, while acknowledging that bank supervision and regulation might need to change in the wake of the collapse. The Fed was Silicon Valley Bank's primary regulator, and it too was reviewing why it had failed to stop risks that were in plain sight. Silicon Valley Bank's collapse this month sent shock-waves across the global banking system, prompting many depositors to pull their cash out of regional and smaller banks over concerns they could lose their money.
Republican Senator Rick Scott and Democrat Senator Elizabeth Warren are introducing legislation to replace the Federal Reserve's internal watchdog with one appointed by the president, in order to tighten bank supervision following the failures of Silicon Valley Bank and Signature Bank. The legislation would replace the Fed's inspector general with an independent IG who would oversee the Federal Reserve and the Consumer Financial Protection Bureau. The cooperation between Scott and Warren, who usually inhabit opposite poles of the political spectrum, could be the start of a new bipartisan push on banking.
The Federal Reserve supervisors were aware of the mounting problems at Silicon Valley Bank (SVB) before it collapsed, according to a report by Bloomberg. SVB received several notices from supervisors at the Fed warning it of a key problem on its balance sheet - unhedged interest rate risk. The report comes amid questions about the role of senior Fed officials in examining the causes of the collapse.
Officials from the Biden administration wanted to include regulatory shortcomings in the joint statement announcing the government rescue of depositors at Silicon Valley Bank and Signature Bank, but Federal Reserve Chair Jerome H. Powell blocked the mention. The statement only referred to positive regulation changes enacted after the 2008 financial crisis. Questions remain about the Fed's oversight of Silicon Valley Bank, and the central bank announced a review of the bank's supervision and regulation. The demise of Silicon Valley Bank has fueled calls for a review of whether large lenders that are not huge enough to be deemed globally systemic should still be subject to tighter rules. President Biden has renewed a call for tighter financial regulation.