Federal Reserve blocked mention of regularly flaws in Silicon Valley Bank rescue

WASHINGTON — As U.S. regulators prepared to announce an extraordinary government rescue of depositors at Silicon Valley Bank and Signature Bank on Sunday, officials from the Biden administration pushed to formally spotlight shortcomings in financial regulation that they blamed for the banks’ rapid descent to insolvency, according to several people involved in or close to the discussions.

But Jerome Powell, chair of the Federal Reserve, blocked efforts to include a phrase mentioning regulatory failures in the joint statement released early Sunday evening by the Fed, the Treasury Department and the Federal Deposit Insurance Corp.

Government officials raced through the weekend to decide how to protect the financial system against the failure of Silicon Valley Bank, and the back and forth underlined a tension in the discussions. Some administration officials wanted to include that lapses in bank regulation and supervision had contributed to the problems that helped fell the bank.

Powell pushed to take the line on regulation out of the statement because he wanted to focus on the actions being taken to shore up the financial system, according to a person familiar with that matter. Those steps included ensuring that no depositors at Silicon Valley Bank would lose their money and setting up a new program from the Fed to provide loans that could help the banking system at a challenging moment.

In the end, the statement spoke only of regulation in positive terms, referring to laws and regulatory changes enacted after the 2008 financial crisis that were meant to increase oversight of banks.

“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry,” it read. “Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

Still, questions remain about the Fed’s oversight of Silicon Valley Bank, and the central bank on Monday announced that it would carry out a review of the bank’s supervision and regulation.

“The events surrounding Silicon Valley Bank demand a thorough, transparent and swift review by the Federal Reserve,” Powell said in the news release.

Whether the regulation of Silicon Valley Bank was adequate has become a point of heated political discussion since its demise, with powerful lawmakers including Sen. Elizabeth Warren, D-Mass., arguing that lax banking rules and deregulation under the Trump administration helped lead to the problems in the banking system.

Congress passed a law to lighten rules for small and midsize banks in 2018. Although many Democrats signed on to the legislation, some have remained skeptical of it — and particularly of how the Fed went about implementing the rollbacks.

The Fed implemented the changes under the watch of Randal Quarles, then the central bank’s vice chair for supervision. Quarles also shifted the tone on day-to-day bank supervision at the Fed, insiders and outsiders have said, making it less intense and more predictable.

Powell, who was chair at the time, voted for the Fed’s decisions — and some Democrats, including …read more

Source:: The Mercury News – Entertainment


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