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Powell Claims That The Fed is Perplexed as to How the SVB Collapse Occurred

2023-03-23 15:06:45

The Federal Reserve chairman stated that his ‘sole goal is that we determine what went wrong here’ during the FOMC meeting on March 22.


Jerome Powell, the head of the US Federal Reserve, has acknowledged that despite being in charge of the institution, his regulator was caught off guard by Silicon Valley Bank's (SVB) abrupt demise.

After the bank closed on March 10, Powell noted in a news conference held shortly after the Federal Open Market Committee meeting that he realized right away that an internal probe was required. Powell added:

"I have understood straightaway that an assessment would be essential. I mean, throughout that first weekend, we were all asking ourselves, How did this happen? "

The Federal Reserve said on March 13 that an internal inquiry, headed by Vice Chairman Michael Barr, had begun. The probe would look into the circumstances underlying SVB's failure and how the Federal Reserve "managed and controlled" the company.

Powell declared that Barr will testify the following week. Powell stated, "We're reviewing oversight and regulation. He said, My sole concern is that we figure out what went wrong here.’’

The Federal Reserve's escalating interest rate increases, which have been made in an effort to contain inflation, have been blamed for SVB's demise. It is believed that this has damaged the long-term bonds that SVB bought at almost zero interest rates.

When SVB disclosed that it had incurred an after-tax loss of $1.8 billion and aimed to raise $2.25 billion, the market went into a panic, which caused a $160 billion loss in market value in 24 hours. As SVB CEO Greg Becker was advising investors to "remain cool" and not "panic," depositors started to request withdrawals from SVB in large numbers, sparking a bank run.

SVB Stock Share Price. Source: Yahoo Finance

In order to enable depositors to access their money, the Federal Deposit Insurance Commission (FDIC) of the United States intervened on March 10 and took control of SVB. The government quickly implemented emergency steps to guarantee all deposits at SVB.

Powell's most recent remarks on SVB coincide with the Federal Reserve Board's announcement that interest rates will rise by 25 basis points. Sen. Elizabeth Warren of the United States is angry with Powell over the news, since Powell has now increased interest rates nine times in a row, reaching 5%.

She declared in an interview with CNN on March 22 that "I think he's a hazardous man to have in this post. In the contemporary economy, we've never seen rises at this rate, adding that it runs the danger of driving our economy into a recession."

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