The run on customer deposits at US banks that began a fortnight ago occurred at an unprecedented pace and suggests that regulators need to be ever vigilant and quicker to respond, Federal Reserve Chairman Jerome Powell said on Wednesday
WASHINGTON (Pakistan Point News / Sputnik - 23rd March, 2023) The run on customer deposits at US banks that began a fortnight ago occurred at an unprecedented pace and suggests that regulators need to be ever vigilant and quicker to respond, Federal Reserve Chairman Jerome Powell said on Wednesday.
"The speed of the run, it's very different from what we've seen in the past," Powell said, referring to the deposit runs that began at California-based Silicon Valley Bank and caused liquidity issues at least at three other US banks. "It does kind of suggest that there's a need for possible regulatory and supervisory changes, just because supervision and regulation need to keep up with what's happening in the world."
The United States has been enveloped in a banking crisis that began with a federal takeover of Silicon Valley Bank and another commercial bank, Signature. Since, the banking sector had got together to bail out a third bank called First Republic. A Fed investigation of Silicon Valley Bank's collapse is currently underway.
A fourth bank, PacWest Bancorp, was reported to be in trouble on Wednesday after a 20% run on its customer deposits, requiring a cash infusion of $1.4 billion to keep it afloat.
The US banking crisis took on an international dimension last week after renowned Swiss investment banking Credit Suisse went under and had to be bought by rival and compatriot UBS.
Powell, speaking at a news conference after announcing the Fed's latest interest rate hike, said mismanagement and excessive risk-taking were among the early faults detected.
"At a basic level, Silicon Valley Bank management failed badly," Powell said. "They grew the bank very quickly. They exposed the bank to significant liquidity risk and interest rate risk. Didn't hedge that risk. We now know that supervisors saw these risks and intervened. We know that the public saw all this. We know that SVB experienced an unprecedentedly rapid and massive bank run. This is a very large group of connected depositors, (a) concentrated group of connected depositors in a very, very fast run - faster than historical record would suggest."
Senior US officials have said over the past two weeks that the US banking sector was secure and unlikely to face another financial crisis like in 2008 as well as that the Federal Deposit Insurance Corp was ready to backstop any customer loss of deposits in the event of a bank takeover.
Nevertheless, Treasury Secretary Janet Yellen said on Wednesday that there were bigger concerns with US banking despite assurances by Powell that the industry was safe and resilient.
"The failure of a small or community bank could trigger bank runs as much as a larger bank failure," Yellen said, referring to the situation concerning Silicon Valley Bank.
A study by a group of private economists concluded last week that some 186 US banks may have troubled finances that have not been reported yet, suggesting that the banking crisis in the United States may be bigger than thought.
