Powell Should Recuse Himself From Fed’s Internal Review Of SVB Oversight, Elizabeth Warren Says

Topline

Sen. Elizabeth Warren (D-Mass.) called on Federal Reserve Chair Jerome Powell to recuse himself from the agency’s internal probe of its role in the Silicon Valley Bank collapse, a day after Democrats attributed the meltdown to Trump-era regulatory rollbacks.

Key Facts

Powell’s “actions directly contributed to these bank failures,” Warren tweeted Tuesday, adding that “Powell must recuse himself from this internal review.”

The Federal Reserve said Monday that Vice Chair for Supervision Michael Bar will launch an internal review of its oversight of Silicon Valley Bank after the bank’s failure last week.

On Monday, Warren, along with a coalition of Democrats including President Joe Biden, criticized Trump-era regulatory rollbacks that freed SVB and other small- and medium-sized banks with less than $250 billion in assets from performing regular stress tests.

Warren also placed blame for the deregulation on the Federal Reserve and said in a New York Times op-ed the agency allowed SVB and other financial institutions to “load up on risk.”

What To Watch For

The Fed’s review will be released publicly on May 1.

Crucial Quote

Regulators at the Federal Reserve “need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” Barr said.

Key Background

Silicon Valley Bank collapsed last week—marking the largest bank failure since 2008—with thea downfall attributed to its focus on the struggling technology startup industry and increasing interest rates that caused a decline in the value of SVB’s investments, billions of which were in mortgage-backed securities. New York-based Signature Bank, a main lender to the ailing cryptocurrency industry, was shuttered on Sunday after shares fell by nearly 25% on Friday and customers swiftly withdrew their deposits. The Federal Deposit Insurance Corporation has taken over the assets at both banks and promised all depositors they would have access to their money by Monday.

Tangent

Prior to the downfall of SVB and Signature, Powell told Congress last week that the Fed would ramp up its already aggressive campaign to raise interest rates in a bid to tame inflation. In the wake of the bank crises, some economists predicted the Fed would pause its hike on interest rates, which reached a 16-year high in October. Lawmakers on both sides of the aisle, including Biden and Senate Banking Committee member Bill Hagerty (R-Tenn.), have also called for an examination of the San Francisco Fed’s oversight of SVB. The bank’s CEO, Greg Becker, served as a director at the San Francisco Fed office until Friday and was part of the nine-member board since 2019.

Further Reading

Biden Says Saving Silicon Valley Bank Helped Economy ‘Breathe Easier’—But Not All Experts Agree (Forbes)

What To Know About Silicon Valley Bank’s Collapse—The Biggest Bank Failure Since 2008 (Forbes)

SVB Shut Down By California Regulator After Bank Stocks Crash Amid Turmoil (Forbes)