Following the failure of three lenders in the past week, the Federal Reserve is considering altering how it supervises midsized banks, according to a source familiar with the situation.
Authorities at the US central bank are considering policies that would include capital and liquidity requirements that are more stringent than those imposed on the biggest Wall Street corporations. The individual, who wanted to remain anonymous because they were discussing internal deliberations, said that one modification under consideration might affect so-called stress tests, which evaluate lenders’ capacity to endure a crisis.
FED To Pitch In Tough Regulations For Banks
According to rumors, the Federal Reserve is looking to pitch in strong rules to prevent the recent collapse of Silicon Valley Bank ahead. The simultaneous failure of two U.S. banks has sparked concerns about the financial system and prompted the authority to take additional steps to backstop the loss.
The U.S. central bank has begun scrutinizing banks with assets of $100 billion to $250 billion. The authority is examining the capital and liquidity standards imposed on banks of this type. It further stated that the bank would evaluate its yearly stress test.
According to the article, the FED’s intervention in the Silicon Valley Banks’ case prompted the evaluation of the status of the institutions. Yet, the central bank is currently criticized for omitting the warning indications of escalating issues in the SVB. These issues, according to experts, were too blatant to go unnoticed.
Why the sudden need to toughen rules
To prevent a repeat of SVB’s collapse, the Federal Reserve is considering stricter capital and liquidity requirements for midsized banks. A person who knows the situation said yesterday that the review’s primary focus would be on the standards for smaller banks with assets between $100 billion and $250 billion. It will evaluate the annual stress tests conducted by the US central bank.
Following government takeovers of Silicon Valley Bank on Friday and Signature Bank on Sunday, an attempt is being made to review laws for banks with assets between $100 billion and $250 billion. The crypto-friendly Silvergate Capital Inc. made the voluntary liquidation of its bank announcement last Wednesday.
The Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury Department went above and above on Sunday to allay fears. The Fed established a new lending programme for banks in a single action, and it has since generated vigorous political discussion.
Summary
To avoid future collapses like the one of Silicon Valley Bank, the Federal Reserve is thinking about changing how it oversees mid-sized banks, including imposing higher capital and liquidity requirements. In addition, while it conducts its yearly stress tests, the FED plans to propose stringent restrictions to cushion the loss of two U.S. banks. To avoid a repeat of SVB’s failure, the Federal Reserve proposes tougher capital and liquidity requirements for mid-sized banks.
The assessment is currently under fire for failing to mention the warning signs of developing problems in the SVB. Government attempts to revise regulations for banks with assets between $100 billion and $250 billion were evident by the government’s takeovers of Silicon Valley Bank and Signature Bank. With the launch of a new lending program for banks, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury Department have all gone above and beyond to calm concerns.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/03/17/fed-wants-to-toughen-rules-as-multi-bank-collapse-makes-news/