Washington.- The Federal Reserve blamed itself this Friday for not “taking sufficient action” to solve the growing risk of Silicon Valley Bank before the collapse of this institution on March 10, which generated turmoil in the global banking industry.
A highly critical review by Michael S. Barr, the Federal Reserve’s vice president for supervision, identified lax supervision of the bank and said its collapse demonstrated “the weaknesses in regulation and supervision that need to be addressed.”
“Regulatory standards for Silicon Valley Bank were too low, supervision did not work with enough force and urgency, so the contagion of that bank’s failure had systemic consequences not contemplated by the Fed’s framework,” Barr wrote in a letter accompanying the report.
The review spanned hundreds of pages and painted a picture of the bank that grew rapidly in size and risk with limited intervention by supervisors who missed obvious problems and moved slowly to fix those they recognized.
He highlighted a number of possible changes to bank supervision and regulation — from stronger rules for midsize banks to possible modifications in the treatment of deposits greater than $250,000, which is the limit set by federal insurance — — that the Federal Reserve will consider as a response to the disaster.
This rare posthumous self-criticism of the Federal Reserve comes after the shock that caused the collapse of Silicon Valley Bank and continues to rock the US financial system.
Barr, a leading designer of intense banking regulations after the 2008 crisis, was nominated to his current position by President Biden.
