The banking sector in the United States had been going through a period of turmoil and recently the country witnessed the collapse of two of its largest banks namely the Silicon Valley Bank and Signature Bank.
Following the problems that the sector faces, the government, and different agencies are more vigilant about their operations in order to stop another similar event in the sector.
Most recently, the United States Federal Reserve regulatory chief made a statement regarding the fall of the Silicon Valley Bank, where he stated that the central bank failed to properly oversee the operations of the bank before its massive collapse.
While addressing the issue, he also mentioned the name of his predecessor who was appointed by then-president Donald Trump, and placed partial blame for the situation on him.
In his widely anticipated report about the collapse of the banks, Micheal Barr also pointed out different mistakes that happened as a result of the inefficiency of the authorities at the bank too.
He stated that the leadership and the Silicon Valley Bank failed to solve the problems related to the bank and allowed it to build up until before the bank collapsed, which had its effects on the global financial system.
In his 100-page report, Barr also criticizes the overly cautious approach that was made by the examiners at the Central Bank.
What added more impact to the claims made by Barr was his statement which said that the directives from Randal Quarles, who was the then vice chair, made the situation even worse. Quarles was appointed as the vice chair by former president Donald Trump and he served as the vice chair until late 2021.
According to the report by Michael Barr, the directives from Randal Quarles along with the Fed’s implementation of a bipartisan bank deregulation law made a serious impact on the effective supervision of the bank as they reduced the standard of regulations, increased the complexity of the procedures, and also led to promoting a supervisory approach that was very less assertive.
The deregulation law was passed by Congress in 2018 and the combined effect of these two events played a huge role in the collapse of the bank, says the report.
After stating the possible problem that eventually led to one of the biggest collapses in the banking history of the country, Michael Barr also mentioned a possible remedy in order to avoid any similar problems in the future.
In a press release, Barr stated that there should be an increase in the strength and effectiveness of the supervision by the Federal Reserve and also in the regulations that are set by the Reserve so as to avoid any such situations in the future.
The report by Michael Barr can be seen as a basic document to put an end to the ongoing debate regarding the bank regulations that Fed and other agencies should consider in order to improve their supervision over the financial bodies in order to avoid any similar situations in the future.
The failure of the Silicon Valley Bank and the Signature Bank that drastically affected the financial system took place around the same time and it required government officials to backstop the depositors for two failed firms.
The situation in the banking sector is again building up tension and authorities are concerned more than ever following the turn of events that took place at the First Republic Bank.
Recently, the bank was hammered by a sudden withdrawal of $100 billion from the depositors who were concerned about their deposits after the collapse of the Silicon Valley Bank.
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The First Republic Bank is making every effort to stay active amidst the risky situations and the bank is receiving help from other firms. The government is also reportedly ready to put in their receivership of the efforts by the bank files by any chance.
The finding by Michael Barr regarding the SVB is destined to make a huge impact on the sector and it is expected to increase the regulations and restrictions on financial bodies by the government and different agencies.
The Federal Reserve Chair Jerome Powell made it clear that the agency was open to supporting the efforts made by Barr through his repost to avoid a possible financial crisis in the future.
He stated that he was open to addressing the rules and supervisory practices and added that he was very much confident that any new improvements will only lead to a much stronger banking system that could easily withstand major problems or similar issues.
While Powell extended his support to the report, the House Financial Services Chair Patric McHenry had a different response to the report. According to the statement by McHenry, the report was overly political.
He stated that while there are areas identified by Barr where he agrees, the majority of the report seems like a justification of the different long-held policies by the Democrats.
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