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The Fed Can Stop the Next SVB Without New Rules

To prevent future bank failures, regulators could have used existing rules more actively, rather than waiting for new rules from Congress. The Fed could have used its discretion to demand liquidity stress tests and rules for smaller banks, like SVB and Signature Bank.

  • Rules already in place could have prevented bank failures like those of Silicon Valley Bank and Signature Bank.
  • Congress could reverse 2018 legislation that increased balance-sheet size threshold where tougher rules kick in.
  • Mid-sized regional banks lobbied to get the threshold lifted, but banks could have been held to tougher standards.
  • Regulators could have demanded liquidity stress tests and liquidity coverage ratio rules to make risks more apparent.
  • Fed Vice-chair for Supervision Michael Barr will lead a review of the Fed’s oversight of SVB.
The Fed Can Stop the Next SVB Without New Rules
The US central bank needs to use its existing powers to increase supervision of fast-growing banks.