“US Regulatory Agency Report on Root Causes of Regional Banking Crisis”

Xinhua News Agency, New York, April 29th Summary: The US Regulatory Agency Report Reveals the Root Cause of the Regional Banking Crisis

Xinhua News Agency reporter Liu Yanan Zhang Juan

Silicon Valley Bank and Signature Bank were shut down and taken over by regulators in March this year. As the main regulators of these two regional banks, the Federal Reserve Board (Fed) and the Federal Deposit Insurance Corporation of the United States released investigation reports on the 28th. Reveal that the regional banking crisis has long been cursed.

In addition to revealing the poor management of banks, the two reports also revealed the deep-seated reasons for deregulation of banks in the United States, flaws in monetary policy, and the inadequacy of regulators themselves.

Michael Barr, the Federal Reserve’s vice chairman for regulatory financial affairs, said in the report that the closure of Silicon Valley Bank was due to “textbook” mismanagement, the failure of the bank’s management to manage interest rate and liquidity risks, and the failure of the board of directors to supervise management and hold it accountable. responsibility, and Fed regulators failed to act forcefully enough.

Barr pointed out that the regulatory standards for Silicon Valley Bank are too low, the supervision is weak, and the Federal Reserve has not considered the systemic consequences of the closure of Silicon Valley Bank.

The report pointed out that the Federal Reserve has relaxed the supervision of small and medium-sized banks in accordance with the relevant bills passed and implemented by former President Trump, and proposed a strengthened regulatory framework, but these measures may take several years to complete.

In order to avoid the recurrence of the 2008 financial crisis, the United States passed the financial regulatory reform bill “Dodd-Frank Act” in 2010. However, due to the influence of partisan interests and the lobbying of small and medium-sized banks, the United States introduced new legislation in 2018 to relax the regulatory requirements for small and medium-sized banks.

The FDIC report pointed out that its New York regional office has been facing insufficient inspectors since 2017, resulting in insufficient timely assessment and communication with signatory banks.

Reports show a continuing shortage of inspectors for large financial institutions in its New York regional office. Since 2020, an average of 40% of positions in this business unit have been vacant or filled by temporary staff.

The Federal Reserve report also pointed out that benefiting from the rapid increase in venture capital and technology sector deposits brought about by abnormally low interest rates, the asset size of Silicon Valley Bank has grown rapidly from US$71 billion in 2019 to US$211 billion in 2021.

The report shows that the assets of Silicon Valley Bank and Signature Bank have expanded rapidly in recent years. As interest rates move higher in 2022, the two banks are experiencing deposit outflows.

These two banks expanded rapidly and accumulated risks during the period of extremely loose monetary policy in the United States, while the Fed’s rapid tightening of monetary policy led to risk exposure and losses, and finally fell down in this irresponsible monetary policy adjustment.