Fed Launches Sweeping Review of Silicon Valley Bank Supervision

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The Federal Reserve announced on Monday that they will be checking how well they had been supervising Silicon Valley Bank, after the bank went bankrupt. Michael Barr, an important supervisor of the Fed, will lead this review process. Chair Jerome Powell said that the investigation needs to be done fast, thoroughly and openly.

Barr said that we need to be humble, and take a close look at how we managed this business and what lessons we can learn from it. This is breaking news. Here’s the story below.

On Monday, people with money in banks took out their savings and investors stopped buying shares of bank stocks. The government is trying to make sure that everyone knows the banking system is safe following two banks closing down, which caused worry that more banks might close too.

President Joe Biden said the system was okay even after two of the biggest banks collapsed within two days. To deal with this crisis, the banking officials promised to protect deposits at both these banks and created a program which offered help to other banks so that people will not take out their money.

Biden told the public not to worry and that those responsible for the Silicon Valley Bank’s failure would be punished. On Friday, a lot of people rushed to take out their money all at once, leading to the bank needing to close. It was the second largest banking failure ever in the United States – worse than Washington Mutual in 2008 and Signature Bank also shut down too which was third largest.

The government decided to pay back people’s money that they had put into the banks, even if they put in more than $250,000 (which is usually the amount that the government will cover). But even though the government said this, a lot of investors were still worried and sold shares from their bank stocks. For example, First Republic Bank’s stocks fell by over 70%, but even after this happened, First Republic Bank still got help from both the Federal Reserve and JPMorgan Chase.

Stocks in big banks like Charles Schwab, Fifth Third Bank, Truist, Comerica and Ally Financial all dropped quickly when First Republic’s stock fell. Banking experts said this was because people had to figure out which banks would be winners and losers with the new banking system. There was a chance that customers with over $250,000 in deposits could not access their money for a while.

Chris Caulfield, a senior partner at West Monroe, said that just because the government helped two big banks (Silicon Valley Bank and Signature Bank) doesn’t mean they will do the same for smaller banks. However, the government seems to want to protect all deposits if it’ll prevent any harm in the economy.

According to Norbert Michel, a banking expert from the libertarian-leaning Cato Institute, banks can’t escape being regulated no matter what kind of bank it is or how far away it may be. All banks are now covered and monitored in case anything bad happens.

Ian Brandt had a bank account at Signature Bank and went to the bank branch in New York City, which was close to his law firm. He wanted to find out if the bank was open, but he couldn’t get an answer over the phone, so he decided to go there.

When they asked him how he felt when he found out that the government insured deposits at the bank, he said “For now.”

Even though many medium-sized banks were bought and sold, people gave little worry about the stability of huge banking companies like JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo. It seems people believe that the safest way to invest in banking is with institutions that have lots of regulations.

Regional banks are seen to be the riskiest because they are not big enough to compete with large banks. Having a lot of money in your bank account used to be good, but now it can cause problems because people may take their money away if something bad happens.

Mr. Caulfield said that he wouldn’t want to run a regional bank right now because its services are not as good as larger competitors.

To help people feel less anxious, BIG organizations like the Bank of England and U.K. Treasury got involved by making it possible for HSBC (Europe’s biggest bank) to buy a company in London from Silicon Valley Bank. This deal protected over 8 billion dollars worth of deposits.

The government has made a plan so that people using the Silicon Valley Bank and Signature Bank can get their money when they need it. The Federal Reserve will let those banks use some investments as collateral, meaning that if something goes wrong, the Treasury (government) will put in $25 billion to help out. The Fed thinks this won’t happen though because the investment is really safe.

On Sunday, New York bank authorities took control of Signature Bank and dismissed its leaders. They gave the Federal Deposit Insurance Corp everyday control over the bank.

New York Governor Kathy Hochul explained that this move was done to prevent several banks in New York from getting into a bigger crisis. She said at a press conference that “we wanted to make sure people stay calm and there is stability with the banking system in New York”.

She reported that a lot of people took out their money from the bank last week and this trend continued even when banks started to operate over the internet. On Monday, the bank reopened with a new name: Signature Bridge Bank.

Signature Bank has been around for more than 20 years now. It works specifically with small business owners, their leaders and important people. There are about 40 different offices spread all over the country.

The government did a lot to help out two failed banks on Sunday, but their actions were still much smaller than the ones taken fifteen years ago. This means that the two banks won’t get rescued and no taxpayer money was given to them.

The important people at Silicon Valley Bank were worried that if the government did not help them, customers would take their money out of other banks. The value of stocks at other types of banks, who work with tech companies such as First Republic and PacWest Bank, dropped. Silicon Valley Bank also works with a lot of different kinds of companies; like wineries in California and tech firms dedicated to fixing global warming.

On Monday, there were people at Silicon Valley Bank who could answer questions. Michele Barry, a teacher who also runs an after-school program for kids, wanted to make sure her four employees would receive their payments. She was reassured that all of the checks handed out on Friday as well as automatic payments would still be valid.

Barry had enough funds in her account to cover the expenses, but she shifted most of it to another bank. She said Biden’s confidence gave her a relief.

“In my country South Africa, if something like this happened no one would protect the money”, she declared.

___ Two journalists, Rugaber and Megerian, reported news from Washington whereas Sweet and Bussewitz reported news from New York. In addition to them, five other people from different parts of the world – Hope Yen from Washington, Michelle Chapman from New York, Jennifer McDermott from Rhode Island, Geoff Mulvihill from New Jersey and Danica Kirka from London – provided information for this report.