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Federal Reserve Oversight Comes into Question After Silicon Valley Bank Collapse

Federal Reserve Oversight Comes into Question After Silicon Valley Bank Collapse

The supervision work carried out by the Federal Reserve (FED) with the Silicon Valley Bank (SVB) has been located in the eye of the hurricane, after the collapse of the entity, with the Democratic senator Elizabeth Warren calling this Sunday March 19 for an independent investigation into the possible failures. In a letter, Warren asked inspectors general of the Treasury, the Fed and the US Guarantee Fund to present lawmakers with a preliminary report on recent banking and regulatory problems within 30 days.

The message blames, at least partially, the central bank for the falls in the SVB and the SignatureBank which, in recent days, have triggered doubts about the health of other entities and created fear of a new financial crisis.

“Bank executives, who took unnecessary risks or failed to prepare for fully foreseeable threats, must be held accountable for these failures, but mismanagement was allowed by a series of rulings by legislators and regulators,” said Warren, who is seeking a tightening of rules on the financial sector.

His message comes while various pieces of information suggest that the fed knew well the problems of the SVB and he was unable to take steps to prevent their collapse. According to sources quoted this Sunday by The New York Times, the Federal Reserve already detected important weaknesses in 2021 and issued several warnings to the bank until it was placed in a situation of special surveillance last year.

All of this has led some to question whether the US central bank could have done more to force the SVB to change course and thus prevent its fall.

Warren, in a television interview today, pointed directly to Fed chief Jerome Powell as ultimately responsible for the supervisory failure and accused him of being more concerned with lightening banking regulations than ensuring adequate oversight.

The legislator, who belongs to the left wing of the Democratic Party and one of the most critical voices with Wall Street in the US Senate, has denounced that the problems derive, in addition, from a law that was approved in 2018, during the Republican administration donald trump, and that it exempted banks from some of the rules that had been established after the financial crisis of 2008.

Last week, Warren already presented a proposal to reverse this measure, which was also criticized by other figures on the left, such as Senator Bernie Sanders.

New proposal

This weekend, Sanders announced, for his part, that he is going to propose a law to end with the “conflicts of interest” that come from allowing bank executives to sit on Fed boards.

“One of the most absurd aspects of the fall of the Silicon Valley Bank is that its CEO is a manager in the body in charge of regulating it: the San Francisco FED,” he said via Twitter.

Last Monday, the Federal Reserve of the United States has already announced that it is investigating its management and supervision of the SVB and that it will publish a report with its conclusions on May 1.

Source: Larepublica

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