‘How did this happen’ — Powell says Fed stumped over the collapse of SVB

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US Federal Reserve Chairman Jerome Powell has admitted that regulators were caught off-guard by the sudden failure of Silicon Valley Bank, even though they were under scrutiny.

at a press conference hold Shortly after the Federal Open Market Committee meeting on March 22, Powell said he quickly learned of the need for an internal investigation when the bank closed on March 10. rice field.

“I quickly realized we were going to need a review, so the question we were all asking ourselves that first weekend was, ‘How did this happen? ”

On March 13, the Fed announced the launch of an internal investigation led by Vice Chairman Michael Barr to explore the events surrounding the SVB failure and how the Fed “supervised and regulated” the banks.

Powell confirmed that Burr will testify next week.

“We are reviewing our oversight and regulation,” Mr. Powell said. “My only interest is to identify what went wrong here,” he added.

Federal Reserve Chairman Jerome Powell speaks at the Federal Open Market Committee meeting on March 22nd. source: federal reserve

The SVB collapse is linked to a series of interest rate hikes by the Federal Reserve (Fed) aimed at containing inflation. This is understood to have eroded his SVB’s long-term bonds purchased at near-zero interest rates.

When SVB suffered a $1.8 billion after-tax loss and announced it was considering raising $2.25 billion in funding, markets panicked, pushing its market cap to $160 billion in 24 hours. .

Shares of SVB Financial Group fell nearly 60% on March 10th. source: Yahoo Finance

At the time, despite SVB CEO Greg Becker urging investors to “keep calm” and “do not panic,” depositors en masse began demanding withdrawals from SVB, causing a bank run. caused

On March 10th, the US Federal Deposit Insurance Commission stepped in and took hold of the SVB to give depositors access to their money. The government immediately took emergency measures to guarantee all deposits of SVB.

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Chairman Powell’s latest comments on the SVB came when the Federal Reserve announced it would raise interest rates by 25 basis points.

The news has left US Senator Elizabeth Warren frustrated that Powell raised interest rates to 5% for the ninth time in a row.

“I think he’s a dangerous man to take this job,” she said in a March 22 interview. interview on CNN.

“I have never seen a rate hike like this in a modern economy,” he said, adding that it risked “putting the economy into recession.”

Warren believes the impact of Powell’s “weak” regulatory approach to large US banks over the past five years is another factor responsible for the recent banking crisis.

“I learned five years ago that as a result of such a weakening, these banks piled up risks, piled up short-term profits, gave themselves huge bonuses and huge salaries, and made one of those banks I predicted that the department would explode.

“That’s exactly what happened with the Jerome Powell watch,” Warren added.

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