Michael Barr, Vice Chairman for Supervision at the U.S. Federal Reserve (Fed), recently attributed the Silicon Valley Bank (SVB) bankruptcy, which heightened concerns about a systemic crisis in the banking sector, to "a textbook case of poor management," placing responsibility on the bank's executives. He also noted that capital rules for banks had been under review even before the incident, signaling that financial regulatory supervision will be further strengthened going forward.
On the 28th (local time), Vice Chairman Barr appeared before the Senate Banking Committee hearing and expressed his opinion on tightening regulations, stating that "it will be necessary to strengthen capital and liquidity standards" for banks with assets exceeding $100 billion. In addition to Vice Chairman Barr, the hearing, which focused on the banking crisis following the SVB collapse and regulatory responses, was attended by Martin Gruenberg, Chairman of the Federal Deposit Insurance Corporation (FDIC), and Nellie Liang, Deputy Treasury Secretary, among others.
First, Vice Chairman Barr described the SVB incident as "a failure stemming from poor bank management," explaining that "the bank's executives failed to adequately address clear interest rate and liquidity risks." He assessed the bank run triggered by the SVB collapse as occurring at a "surprising speed and scale." On the first day of the crisis, $42 billion was withdrawn from SVB, and on the second day, the amount reached approximately $100 billion.
However, Vice Chairman Barr also acknowledged that he only became aware of the SVB issues in mid-February. Considering that these risks had been raised by bank supervisors since November 2021, this means that, as Vice Chairman for Supervision at the Fed, he recognized the severity of the problem relatively late. He expressed regret for not addressing the issue in a timely manner during the hearing.
On this day, Vice Chairman Barr and other officials confirmed that they would strengthen regulations to prevent a recurrence of the SVB incident. When asked whether it was necessary to re-strengthen banking regulations that had been tightened after the global financial crisis but relaxed during the Donald Trump administration, all agreed on the need for reinforcement.
Chairman Barr stated, "The Fed has the authority to impose stricter conditions on banks with assets exceeding $100 billion," adding, "We will review whether regulatory changes related to bank failures are necessary." He explained that stress tests for banks will be enhanced in the future, and for large banks not designated as systemically important, 'long-term debt requirements' will be introduced. He also mentioned that measures to strengthen capital and liquidity regulations in accordance with Basel III international standards are being considered. As the official in charge of financial supervision, he noted that capital rules had been under review even before the SVB incident.
Chairman Gruenberg also expressed a stance in favor of tightening regulations, stating that the closures of SVB and Signature Bank "demonstrate the potential impact that banks with assets over $100 billion can have on financial stability," and emphasized the need for additional attention to capital, liquidity, and interest rate risks. He explained that the FDIC would present potential options regarding the current $250,000 deposit insurance limit. Deputy Secretary Nellie Liang also responded to questions about the need to strengthen financial regulations by saying, "We must prevent this type of bank failure," and added, "(The Treasury) looks forward to future regulatory proposals."
Claims that the U.S. banking system is sound and resilient were reiterated. Vice Chairman Barr said, "The banking system is sound and well-capitalized with ample liquidity," adding, "The measures we have taken have demonstrated deposit safety and resilience." He also reaffirmed the commitment to deploy all available means to prevent a banking crisis.
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