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Fed Regulator Blames Silicon Valley Bank Executives and Regulatory System for US Lender's Collapse

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BNN Correspondents
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The collapse of Silicon Valley Bank (SVB) and Signature Bank has exposed the failures of bank management, supervisors, and the regulatory system, the Fed's top bank oversight official Michael Barr told a Congressional hearing on Wednesday.

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Speaking to Congress in a hearing on Wednesday, Barr said "I think that any time you have a bank failure like this, bank management clearly failed, supervisors failed and our regulatory system failed".

The collapse of SVB and Signature Bank triggered a broader loss of investor confidence in the banking sector, which led to a steep decline in stocks and raised fears of a full-blown financial crisis. Lawmakers have been pressing regulators on whether the Fed should have been more aggressive in its oversight of the two lenders.

Barr revealed that the Fed was in discussions with SVB to move pledgable collateral to the discount window, a key facility associated with providing emergency loans to banks, on the day before the bank's collapse. The Fed staff worked with SVB all afternoon and evening and through the morning of the next day to pledge as much collateral as possible to the discount window on Friday.

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Barr also criticized SVB for going months without a chief risk officer and for modeling interest rate risk that "was not at all aligned with reality." He told the Senate Banking Committee that he became aware of the interest rate risk issues at SVB in mid-February, while Fed supervisors had been raising issues with the bank directly in the months prior.

The collapse of SVB and Signature Bank has raised questions about the effectiveness of the banking regulatory system and the need for better oversight and accountability. Some Democrats have blamed a 2018 bank deregulation law, which relaxed the strictest oversight for firms holding between $100 billion and $250 billion in assets, including SVB and Signature.

The White House is reportedly preparing to reinstate those regulations on midsize banks in response to the collapse of SVB and Signature Bank. The move highlights the urgent need for better regulation and oversight in the banking sector to prevent future crises and protect the interests of investors and the wider economy.

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