June 8, 2023

Dubai Week

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After the collapse of 3 US banks, fingers point to the Federal Reserve

More than a year after SVB’s collapse, the central bank appointed a committee to examine the bank’s assets

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In the collapse of the three US banks, fingers were pointed at the Federal Reserve because of the obvious weakness in the supervision of these banks and its slowness in taking decisions to save the situation.

And with the collapse of 3 US banks in a single week, announcing its creation of the first financial crisis of this magnitude since 2008, fingers began to point towards who might have caused the crisis. Some experts blamed the U.S. Federal Reserve for its delayed decisions to tackle the crisis.

After the Federal Reserve accused it of delaying its response to the inflationary crisis by not raising interest rates quickly enough, the collapse of the banking crisis exposed a major gap in the Federal Reserve’s work, chief among them the supervision of banks.

More than a year after SVB’s collapse, the central bank appointed a San Francisco panel to examine the bank’s assets.

The special committee issued several warnings and demands for important reforms at SVB Bank, and by the end of last year the committee called for comprehensive reforms to address high interest rates and their impact on the bank’s budget.

On the other hand, under former President Trump, the loosening of disclosure restrictions on banks with less than $250 billion in assets was another factor in the downfall of the three banks, especially after exempting them from certain restrictions. Excluding them from their available capital and financial stress test.

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In a significant development, in late 2021 Gregory Becker, the Federal Reserve vice president in San Francisco who was in charge of overseeing SVB Bank at the time, was appointed to take on another role, which was in charge of the regulator. At Silvergate Bank, this month also faltered.

Baker, the CEO of SVB Bank, sold the bank’s shares for $3.6 million two weeks before the bank’s collapse and is currently under investigation by the Ministry of Justice for doing so.

In exchange for higher interest paid on customer deposits, the bank held old bonds with very low yields to maturity, enough to offset the downturn fueled by customers’ rush to withdraw deposits from the bank.