WASHINGTON —Following a tumultuous several weeks and uncertainty that remains ongoing, the chairman of the Federal Reserve and the Secretary of the Treasury are both calling for stronger oversight of banks, while backing away from talk about a big expansion of deposit insurance.
In respective testimonies before Congress, Fed Chairman Jay Powell and Treasury Secretary Janet Yellen said they are now focused on how the failures of Silicon Valley Bank and Signature Bank took place, and what steps may be needed to prevent deposit runs on banks in the future.
As CUToday.info reported earlier, the Fed has named its vice chair for supervision, Michael S. Barr, to lead a probe of the failures. And he does not expect it will be just the Fed looking to identify what happened.
“There’s 100% certainty that there will be outside investigations,” said Powell during a news conference.
‘Failed Badly’
During the news conference, Powell was critical of bank executives whom he said had “failed badly,” but he also acknowledged that Fed supervisors had also not done their job in keeping the bank from sliding into insolvency, reported the New York Times. Powell said he expected the central bank’s own report to outline concrete steps to avoid a repeat of the crisis.
Silicon Valley Bank was supervised by the Federal Reserve, with the FDIC providing the deposit insurance.
“Clearly we do need to strengthen supervision and regulation,” Powell said. “And I assume that there’ll be recommendations coming out of the report, and I plan on supporting them and supporting their implementation.”
Yellen Testifies
Separately, Yellen said a harder look must be taken into the troubles in the banking industry.
“I absolutely think that it’s appropriate to conduct a very thorough review of what factors were responsible for the failure of these banks,” Yellen said, according to the Times. “Certainly we should be reconsidering what we need to shore up (in regulations) to prevent this.”
Other Points Addressed
According to the report, Yellen also told the Senate:
- She supports legislation that would penalize executives whose actions lead to bank failures and restore rules that were rolled back during the Trump administration that gave the Financial Stability Oversight Council more power to scrutinize nonbank financial institutions.
- That because bank runs “may more readily happen now,” it might make sense to update stress test models and bank liquidity requirements with new assumptions about how quickly deposits could flee.
- That any proposals to raise the Federal Deposit Insurance Corporation’s cap on deposit insurance could be “warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”