The Chairman of the United States Federal Reserve, Jerome Powell has admitted that his regulator was blindsided by the sudden collapse of Silicon Valley Bank, despite being on his watch..
In a press conference held just after the Federal Open Market Committee meeting on March 22, Powell stated that he knew immediately that an internal investigation was necessary when the bank closed on March 10.:
“I realized right away that a revision was going to be necessary. In other words, the question that we all asked ourselves during that first weekend was: “how did this happen?”
On March 13, The Federal Reserve announced the start of an internal investigation led by Vice President Michael Barr to look into the events surrounding the bankruptcy of SVB and how the Fed “supervised and regulated” the bank..
Powell confirmed that Barr will testify next week.
“We’re doing the supervisory and regulatory review,” Powell said. “My only interest is that we identify what went wrong here,” he added..
The collapse of SVB has been linked to the successive increases in interest rates by the Federal Reserve in order to control inflation. This is understood to have eroded SVB’s long-term bonds it bought at rates close to zero.
When SVB announced it was suffering a $1.8 billion after-tax loss and was looking to raise $2.25 billion, the market panicked.which caused a collapse of USD 160,000 million in its market capitalization in 24 hours.
At the time, despite SVB CEO Greg Becker urging investors to “stay calm” and not “panic” depositors began requesting withdrawals from SVB en masse, sparking a run on the banks.
On March 10, the US Federal Deposit Insurance Commission intervened, taking possession of SVB to help depositors access their money.. Soon after, the government put in place emergency measures to guarantee all of SVB’s deposits.
Powell’s latest comments on SVB come as the Federal Reserve Board has announced that it will raise interest rates by 25 basis points..
The news has US Senator Elizabeth Warren frustrated with Powell, who has already raised interest rates nine times in a row to 5%..
“I think he is a dangerous man to have in this position,” he said.in an interview on March 22 on CNN.
“We have never seen increases at this rate in the modern economy,” he said.adding that it risks “pushing our economy into a recession.”
Warren believes that the effects of Powell’s “weak” regulatory approach to big banks in the US over the past five years is another culprit in the recent banking crisis.:
“I predicted five years ago that the consequence of that kind of weakening would be that we would see these banks load up on risk, build their profits in the short term, give themselves gigantic bonuses and huge salaries and then some of those banks would explode.”
“That’s exactly what has happened under Jerome Powell’s watch,” Warren added..
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
Keep reading:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.