World News | Fed says it will review regulation of Silicon Valley banks

NEW YORK, March 14 (AP) — The Federal Reserve announced Monday that it will review its oversight of Silicon Valley Bank following the collapse of the second-largest U.S. bank.

In a brief statement, the Fed said Michael Barr, the Fed’s vice chairman for supervision, would lead the effort.

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Chairman Jerome Powell said the central bank would conduct a “thorough, transparent and expeditious review.”

“We need to remain humble and take a careful and thorough look at how we oversee and regulate this company and what we should learn from this experience,” Barr said in a statement.

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Investors broadly sold bank shares on Monday as savers pulled their savings, as the federal government raced to reassure Americans that the banking system was safe after two banks collapsed, fueling fears that more financial institutions could fail.

President Joe Biden insisted the system was safe after the second and third largest bank failures in U.S. history occurred within 48 hours. In response to the crisis, regulators guaranteed all deposits at both banks and instituted a scheme that effectively gave other banks a lifeline to protect them from deposit runs.

“Your savings will be there when you need them,” Biden told the public, trying to appear calm. He also said banking executives responsible for the failure would be held accountable.

Regulators shut down Silicon Valley Bank on Friday after depositors rushed to withdraw their funds. The only bigger failure in US banking history was the collapse of Washington Mutual in 2008.New York-based Signature Bank also collapsed in the third-largest U.S. collapse

In both cases, the government agrees to pay the deposit, even if it exceeds the $250,000 federally insured limit.

Despite the message from the White House, investors broadly sold bank stocks. Shares of First Republic Bank plunged more than 70%, even as the bank said it was getting emergency funding from the Federal Reserve and additional funding from JPMorgan.

The First Republic was not alone. Shares of well-known franchises including Charles Schwab, Fifth Third Bank, Truist, Commercial and Ally Financial all fell sharply.

Banking experts said the sell-off was partly due to the country embracing a new banking system and investors had to identify winners and losers.

There is no guarantee that anxiety will not creep in. Customers who deposit more than the $250,000 limit at other banks still face the risk of being temporarily unable to withdraw their funds.

Just because the government guaranteed Silicon Valley Bank and Signature Bank “doesn’t mean they’re going to guarantee these smaller banks,” said Chris Caulfield, a senior partner at West Monroe.

But the government’s actions suggest it will support all deposits if doing so prevents damage to the wider economy.

“Everything is covered now. It’s a fact. No matter how specialized or isolated your bank is, if there is a risk of contagion, regulators have made it clear they will intervene,” said Norbert Norbert, a banking policy expert at the libertarian-leaning Cato Institute. Michel said.

Ian Brandt, who had an account with Signature Bank, visited a New York City branch across the street from the law firm where he was an attorney. After being unable to reach someone by phone, he walked to the bank to see if it was open.

Asked if he felt any security after deposits in the bank were guaranteed by the government, Brandt said, “At the moment it does.”

Investors have remained relatively calm about the health of the largest U.S. lenders, including JPMorgan Chase & Co, Citigroup, Bank of America and Wells Fargo, amid a sell-off at mid-sized banks. Investors apparently believe that the only safe place in banking is in the nation’s most heavily regulated institutions.

Regional banks are seen as the riskiest because they are not large enough to compete with larger rivals. Large account balances – once seen as a positive sign of a bank’s clientele’s affluence – are a liability because they can be withdrawn at the first sign of trouble.

“I don’t want to run a regional bank right now where my service is no different than my competitors,” Caulfield said.

International regulators have also had to step in to allay concerns. The Bank of England and Britain’s Treasury said they helped sell a London-based subsidiary of Silicon Valley Bank to HSBC, Europe’s largest bank. The deal protected 6.7 billion pounds ($8.1 billion) in deposits.

Depositors at Silicon Valley Bank and Signature Bank will be able to withdraw funds under plans announced by U.S. regulators. A new Fed program would allow banks to use those securities as collateral and borrow against emergency loans.

The Treasury Department has set aside $25 billion to cover any losses. However, Fed officials said they did not expect to have to tap the funds because the risk of default on the securities used as collateral was very low.

New York banking regulators took over Signature Bank on Sunday, ousting its leader and handing day-to-day control over to the Federal Deposit Insurance Corporation.

New York Gov. Kathy Hochul said the New York State Department of Financial Services’ decision was aimed at preventing a larger crisis involving more banks.

“The idea is to make sure that the whole banking industry here in New York is stable and we can show calm,” Hochul said at a news conference Monday. (AP)

(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)