It would be "irresponsible" not to fix faults in US banking after the liquidity crisis discovered this month, the Federal Reserve's Vice Chair for Supervision Michael Barr said Tuesday, as he pledged to strengthen the system which he maintained was resilient
WASHINGTON (Pakistan Point News / Sputnik - 29th March, 2023) It would be "irresponsible" not to fix faults in US banking after the liquidity crisis discovered this month, the Federal Reserve's Vice Chair for Supervision Michael Barr said Tuesday, as he pledged to strengthen the system which he maintained was resilient.
"I anticipate the need to strengthen capital, liquidity standards for firms over $100 billion," Barr said in testimony before a Senate banking panel. "It is essential to improve capital and liquidity rules. We are reviewing our own practices after the SVB failure, it would be irresponsible not to do so."
SVB has become the shorthand for the US banking crisis which erupted three weeks ago after inadequate risk mismanagement and other "safe" practices at California-based Silicon Valley Bank led to billions of dollars in customer deposit withdrawals. Almost simultaneously, two other banks - Signature and First Republic - faced similar deposit runs, suggesting a contagion.
The crisis in US banking took on an international dimension after famed Swiss investment bank Credit Suisse went under two weeks ago and had to be bought over by rival and compatriot UBS. In recent days, German banking giant Deutsche Bank got into trouble too as balance sheet worries led to a spike in insuring it against default, triggering a tumble in its shares.
Asked about particular fixes he could think of for US banking to prevent a recurrence of this crisis, Barr said: "There is substantial discretion for the Fed to change rules for firms (holding) between $50 and $100 billion of assets."
As a former top staffer at the Treasury Department and an expert on financial regulation, Barr was instrumental in crafting the Dodd-Frank regulation that barred US banks from excessive risk-taking in the aftermath of the 2007/2008 financial crisis that led to what is called "The Great Recession". Over the years, he has routinely warned regulators against getting too complacent and reversing the steps deemed necessary to prevent another financial crisis.
Now he is leading the Fed's investigation on the SVB, taking a lead role in explaining how the most recent fallout in banking forced the government's Federal Deposit Insurance Corporation, or FDIC, to intervene and assume control of troubled banks to prevent a full-blown financial meltdown.
The FDIC used a special emergency authority to protect all depositors in the winding down SVB and Signature Bank, even those with accounts well over the usual limit of $250,000.
The decision to cover all uninsured depositors at the two exposed banks was a "highly consequential one that has implications for the system", said FDIC Chairman Martin Gruenberg, who attended Tuesday's hearing with Barr.
Authorities have said in recent weeks that they are exploring widening the FDIC's powers to fine and take punitive action against banks that fall out of line.
