The failure of Silicon Valley Bank showed a need to strengthen supervision and regulation, Federal Reserve Board Vice Chair for Supervision Michael S. Barr said in testimony that was posted on the Fed’s website Monday (May 15) and will be delivered to a House committee hearing on Tuesday (May 16).
“To start, SVB’s failure confirms the importance of strong levels of bank capital,” Barr said, later adding: “Stronger capital will guard against the risks that we may not fully appreciate today and reduce the costs of bank failures.”
Barr also said the Fed needs to reconsider the requirements that apply to banks based on size and risk, evaluate whether its capital requirements appropriately measure the ability of banks to absorb losses, and evaluate how it supervises and regulates banks’ management of interest-rate risk.
In addition, Barr said in his testimony that the Federal Reserve should evaluate how it supervises and regulates liquidity risk, including working to better capture the liquidity risk of an uninsured depositor base and considering applying standardized liquidity requirements to more banks.
Barr added that the Fed should improve its oversight of bank managers’ compensation, noting that Silicon Valley Bank did not compensate senior managers to manage the bank’s risk.
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“I also plan to improve the speed, force and agility of supervision,” Barr said in the testimony. “Supervisors did not fully appreciate the extent of the vulnerabilities as SVB grew in size and complexity, and when supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that SVB fixed those problems quickly enough.”
Barr’s testimony will be presented Tuesday before the House Financial Services Committee.
Together with his testimony, Barr will submit the Fed’s review of the Silicon Valley Bank situation that was released in April.
The posting of Barr’s prepared testimony comes on the same day that former Silicon Valley Bank CEO Gregory W. Becker’s written testimony prepared for a Senate committee hearing was posted.
Becker will testify Tuesday before the Senate Committee on Banking, Housing and Urban Affairs hearing, “Examining the Failures of Silicon Valley Bank and Signature Bank.”
