New guidelines for banks?: Fed scrutinizes SVB bankruptcy

The US Federal Reserve continues to be concerned with the difficulties of the Silicon Valley Bank in California. The Fed now wants to review the regulation and supervision of the bank.

According to its own statements, the US Federal Reserve (Fed) wants to clarify whether the regulation of the collapsed Silicon Valley Bank (SVB) was possibly insufficient. The supervision of the California money house should also be scrutinized. Fed Chair Jerome Powell said in a statement that the bank’s failure required a thorough, transparent and timely review.

According to experts, the investigation could mean that the Fed could change its policies to prevent future imbalances in the industry. Fed Chair Michael Barr will lead the investigation. The results are to be published by May 1st.

Rapid reaction to bankruptcy

The day before yesterday, the US Federal Reserve presented a new program to support the banks as a first measure: the “Bank Term Funding Program” provides additional funds. Up to $25 billion from the Treasury Department’s Currency Stabilization Fund will back the Fed’s lending program. A key element of the program is that the central bank grants loans to the banks against acceptable collateral.

The Fed assures users of the loan program of confidentiality. Which institutes tapped into this will only be known a year after the end of the program, which is scheduled to run until March 2024. The assured anonymity obviously serves to avoid stigmatization and to take away the banks’ reluctance to obtain the necessary funds from the central bank.

Bankrupt after billions in losses

The Silicon Valley Bank, which specializes in financing young technology companies, got into trouble because it had invested large sums in long-dated US government bonds. Their prices have fallen significantly as a result of the interest rate hikes by the central banks.

To pay out customer money, the SVB had to sell bonds and accept billions in losses. A capital increase to strengthen the balance sheet failed. Customers withdrew billions from the bank, which eventually closed. US regulators later secured customers’ deposits after the bank’s dissolution.

The US government is also calling for stricter rules

Yesterday, US President Joe Biden also spoke out in favor of tightening the rules for US banks after the collapse of California’s Silicon Valley Bank (SVB) and Signature Bank. He wants to ask Congress and regulators to do so, Biden said in Washington. It must be avoided that something like this happens again.

US Treasury Secretary Janet Yellen had stated that all deposits with the SVB would be protected. The customers could access all their money. A similar regulation also applies to the Signature Bank in New York, which was closed by the state licensing authority.

New auction planned for the SVB

According to a media report, the SVB is to be put up for sale again. The US deposit insurance fund FDIC is planning another auction for the money house, as the “Wall Street Journal” reported last night. A new attempt should be made after a sales attempt failed at the weekend. At a second attempt, offers could be made to potential buyers to facilitate a takeover. A loss transfer agreement is conceivable.