The Federal Reserve is facing stinging criticism for missing what observers say were clear signs that Silicon Valley Bank was at high risk of collapsing into the second-largest bank failure in U.S. history.
Now the consequences of the fall of Silicon Valley Bank, along with New York-based Signature Bank, which failed over the weekend, are complicating the Fed's upcoming decisions about how high to raise its benchmark interest rate in the fight against chronically high inflation.
With the collapse of the two large banks fueling anxiety about other regional banks, the Fed may focus more on boosting confidence in the financial system than on its long-term drive to tame inflation. On Monday, Powell announced that the Fed would review its supervision of Silicon Valley to understand how it might have better managed its regulation of the bank. The review will be conducted by Michael Barr, the Fed vice chair who oversees bank oversight, and will be publicly released May 1.
The bank had grown rapidly. Its assets quadrupled in five years to $209 billion, making it the 16th-largest bank in the country. And roughly 94% of its deposits were uninsured because they exceeded the Federal Deposit Insurance Corporation's $250,000 insurance cap. "I'm at a loss for words to understand how this business model was deemed acceptable by their regulators," said Aaron Klein, a former congressional aide, now at the Brookings Institution, who worked on the Dodd-Frank banking regulation law that was passed after the 2008 financial crisis.
Silicon Valley's CEO, Greg Becker, had lobbied Congress in support of the rollback in regulations, and he served on the board of the Federal Reserve Bank of San Francisco until the day of the collapse.
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