Federal Reserve looking at stronger rules for banks with over $100B in assets

Michael Barr, the Federal Reserve’s vice chair of supervision, told a Congressional hearing on Tuesday that the regulator is considering tougher rules on banks with assets over $100B in the wake of recent bank failures.


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As in the Fed’s report on the failure of Silicon Valley Bank, the bank supervisors “did not fully appreciate the extent of the vulnerabilities as SVB grew in size and complexity,” Barr said in testimony to the House of Representatives Financial Services Committee.

He said he plans “to improve the speed, force, and agility of supervision,” and that supervision “should intensify at the right pace as a bank grows in size or complexity.”

The failure of SVB confirmed the importance of strong levels of bank capital, he said in prepared text for his opening statement. As in the Fed’s report, issued on April 28, he said the bank regulator should evaluate how it supervises and regulates interest-rate and liquidity risks.

Another lesson the Fed learned: “We need to reconsider the requirements that apply to banks based on size and risk.” While the bank wasn’t extremely large or highly connected to other financial counterparties, SVB’s distress had broader consequences for banking system, he said.

Barr suggested that a requirement for banks to recognize the declines in the face value of available-for-sale securities in their capital may have prompted SVB to have held more capital to cover losses.

However, any rule changes that the Fed might propose wouldn’t be effective for several years due to the rulemaking process.

“In addition, our oversight of incentive compensation for bank managers should also be improved,” Barr said. “SVB’s senior management responded to the poor incentives approved by its board of directors, they were not compensated to manage the bank’s risk, and they did not do so effectively.”

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