The White House is carefully monitoring developments at the First Republic and other small entities, after taking steps to protect depositors following the collapse of Silicon Valley Bank and Signature Bank. Meanwhile, the Federal Reserve is criticized for ignoring warning signs of these bankruptcies.
The collapse of at least two banks in the United States, the second and third largest since the 2008 crisis, has put several in public scrutiny: on the one hand, the smaller banks for their business management and on the other, the regulatory authorities and the role they would play in this situation.
A senior White House official told Reuters he is carefully monitoring developments at First Republic and other banks of a similar size, ruling out any real danger of runs at other regional institutions. The US banking system is in “a much better position right now,” he said.
But the Federal Reserve has also gone from watchdog to watchdog in this context, facing harsh criticism for overlooking what experts say were clear signs that Silicon Valley Bank was at high risk of failure.
Critics list among the red flags surrounding the bank its rapid growth since the pandemic, its unusually high level of uninsured deposits, and its many investments in long-term government bonds and mortgage-backed securities, which have fallen in value. as interest rates rose.
“It’s inexplicable how Federal Reserve supervisors failed to see this clear threat to the safety and soundness of banks and to financial stability,” said Dennis Kelleher, chief executive of Better Markets, an advocacy group.
Suspicions about Silicon Valley Bank came from a long time ago
By all accounts, Silicon Valley was an unusual bank. His management took excessive risks by buying billions of dollars in mortgage-backed securities and Treasuries when interest rates were low.
As the Federal Reserve continually raised interest rates to combat inflation, leading to higher rates on Treasuries, the value of Silicon Valley Bank’s bonds steadily lost value.
Most banks would have sought to make other investments to offset that risk, and the Fed could also have forced the bank to raise additional capital. But critics emphasize that this did not happen.
The newspaper ‘The Wall Street Journal’ talks that there is already an ongoing investigation by the Department of Justice that could point to the former president of Silicon Valley Bank, Greg W. Becker, and his former financial chief, Daniel Beck, for allegedly having sold company shares just a week before it collapsed.
With Reuters, AP and local media