'How did this happen' — Powell says Fed stumped over the collapse of SVB
United States Federal Reserve chairman Jerome Powell has conceded that his regulator was blindsided by the sudden collapse of Silicon Valley Bank (SVB), despite it being under their watch.
In a press conference held just after the Federal Open Market Committee meeting on March 22, Powell said he immediately knew there was a need for an internal investigation when the bank shut down on March 10, stating:
The Federal Reserve announced the launch of an internal investigation on March 13, which is being led by Vice Chairman Michael Barr to look into the events surrounding the failure of SVB and how it “supervised and regulated" the firm.
Powell confirmed that Barr will be testifying next week.
“We’re doing the review of supervision and regulation,” Powell said. “My only interest is that we identify what went wrong here,” he added.
SVB’s collapse has been linked to the Federal Reserve’s successive interest rate hikes that have been aimed at taming inflation. This is understood to have eroded SVB's long-term bonds it purchased at near-zero rates.
When SVB announced that it suffered an $1.8 billion after-tax loss and was looking to raise $2.25 billion. The market panicked, leading to a $160 billion wipe out in its market cap in 24 hours.
At the time, despite SVB CEO Greg Becker urging investors to “stay calm” and not to “panic”, depositors began to request withdrawals from SVB en masse, causing a bank run.
On March 10, the United States Federal Deposit Insurance Commission (FDIC) stepped in, taking possession of SVB to help depositors get access to their money. Emergency measures were put in place from the government soon after to guarantee all deposits at SVB.
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