Last updated on March 16th, 2023 at 02:20 pm
The Federal Reserve has begun an investigation into the causes of Silicon Valley Bank’s (SVB) collapse. The agency will evaluate the oversight and regulatory methods utilized by the collapsed financial institution.
The Federal Reserve appointed Vice Chair for Supervision Michael Barr to lead the investigation into the supervision and regulation of Silicon Valley Bank following its failure. The review is slated to be made public on May 1, 2023.
According to a statement by Jerome H. Powell, Chair of the Federal Reserve:
“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve.”
The vice chair, Barr, highlighted the importance of handling the situation with humility and doing an extensive review of their monitoring and regulation of the firm.
Suspicion about the cause of SVB’s failure emerged immediately after regulators took swift action to ease volatility among small lenders. Insiders suggest that officials from the Biden administration are currently reviewing the level of supervision provided by California state regulators.
Regulators in Washington are reportedly investigating whether SVB and New York’s Signature Bank, which also failed and was shut down on Sunday, had conducted adequate planning and stress testing as the Fed began to raise interest rates last year.
On March 10, the California Department of Financial Protection and Innovation closed Silicon Valley Bank without providing any explanation for the shutdown. Reports suggest that the bank was on the brink of failure due to substantial losses on government bond investments and withdrawals by panicked depositors. Both incidents led to severe liquidity issues for the bank before it ceased operations.
Silicon Valley Bank’s collapse comes after Silvergate Capital Corporation, a cryptocurrency-friendly bank, announced its voluntary liquidation on March 8, 2023. This makes SVB the second prominent US bank to fail the previous week.
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