(Washington) The Federal Reserve (Fed) acknowledged on Friday, in a report concerning the bankruptcy of the American bank SVB, a series of failures on the part of its supervisory body which did not allow it to act in time to avoid the collapse of the establishment.
Admittedly, the Fed first points to the inability of the management of Silicon Valley Bank (SVB) to “manage their risks”, but it also acknowledges that it did not make the appropriate decisions once the risks were known.
But she also admits to having her share of responsibility in this bankruptcy which shook the American banking system for several weeks and continues to have repercussions.
First, supervisors “did not fully appreciate the extent of the bank’s vulnerabilities,” the report said, as the bank grew “in size and complexity.”
But more than that, even though “the vulnerabilities were identified”, its oversight body did not “react sufficiently to ensure that SVB addressed the issues” raised sufficiently quickly.
“The Federal Reserve failed to make the strong enough decisions that were needed,” Fed Vice Chairman Michael Barr acknowledged in a letter accompanying the report.
“I welcome this thorough and self-critical report, and agree with and support the recommendations to strengthen our rules and supervisory practices,” Fed Chairman Jerome Powell said in a statement.
The report indeed proposes a series of actions to be implemented by the American central bank, in particular by imposing a reinforcement of the reserves concerning the medium-sized banks.
Until now, the United States imposed the application of the so-called “Basel III” rules only on its largest establishments, about fifteen in total.
“Basel III”, a wide range of international banking sector reforms, was initiated after the financial crisis of 2008-2009 in order to strengthen the soundness of banks. Many steps have been taken, but some reforms still need to be finalized, especially in the United States.
But the failure of several regional banks, in the wake of the fall of SVB, and the difficulties of another, First Republic, are now prompting it to “strengthen the resilience of the financial system and not just focus on specific risks. “.
“After the Silicon Valley Bank failure, we need to strengthen Federal Reserve oversight and regulation based on what we’ve learned,” Barr said, adding that this report was “the first step in that process.” .
Proposals to this effect are planned for a later stage.
More broadly, the report nonetheless recalls that the US financial system remains “strong and resilient, with a high level of capital and liquidity”, adding that SVB was “an exception due to its highly concentrated business model”.