Feds admit shortcomings after SVB bankruptcy

The Federal Reserve (Fed), the US central bank, has failed to supervise the US Silicon Valley Bank (SVB), which went overboard in March after a bank run. This is stated in a report by the Fed on the bankruptcy.

The report says the SVB summit failed to manage the risks, but adds that Federal Reserve regulators “did not adequately understand the extent of the bank’s vulnerabilities” and that they “did not take sufficient action to be sure the bank would resolve the issues quickly enough.”

”After the failure of Silicon Valley Bank, we need to strengthen supervision and regulation by the Federal Reserve based on what we have learned,” said Michael Barr, Vice Chairman of the Fed. “I am sure that will lead to a stronger and more resilient banking system.”

Among other things, the report proposes to oblige medium-sized banks to hold more reserves.

Silicon Valley Bank was primarily active in the technology sector. The bank got into trouble because of the accrued interest. As a result, refinancing existing loans, taken out at low rates, was expensive and difficult. The problems led to a bank run: customers tried to withdraw their funds en masse. The bank did not have enough cash and eventually had to be closed by the authorities.

SVB’s failure was the largest by a U.S. bank since the 2008 financial crisis. It led to turmoil in the financial markets and to great pressure on bank shares, including in Europe.

In the wake of SVB’s bankruptcy, Credit Suisse was in danger of going bankrupt in Switzerland, whereupon the bank was taken over by rival UBS in an emergency operation. The Swiss central bank also called earlier on Friday to tighten the rules for banks in the country.

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