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U.S. Federal Reserve Announces Stringent Capital Rules Amid Recent Bank Failures

According to its top regulatory official, the Federal Reserve has declared its intention to tighten capital rules for banks this summer. This announcement comes in response to several recent bank failures, promising increased oversight from supervisors to prevent similar incidents.


Plan to Review Regulations for Large Regional Banks

Michael Barr, Fed Vice Chair for Supervision, disclosed that the agency is seriously considering rule modifications for larger regional banks, specifically those with assets exceeding $100 billion. Barr anticipates outlining his plan for revamping the Fed's capital and liquidity rules during the summer. This will set the stage for a major rule-rewriting process for banking regulators.

Higher Expectations for Large Banks and Capital Levels

In the proposed changes, larger banks could face stricter rules, including the requirement to consider unrealized losses on their books when evaluating capital levels. Previously, these lenders benefited from looser regulations during the Trump administration.

Increased Scrutiny on Bank Regulators Following Notable Collapses

Regulators have faced significant scrutiny following the collapses of Silicon Valley Bank and Signature Bank (OTC: SBNY). This triggered a decline in global banking shares and sparked fears of widespread fallout. High-ranking officials from the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency also testified before the House Financial Services Committee.

Regulators Advocate for More Aggressive Supervision

These officials pledged to adopt a more assertive approach and empower supervisors after the bank failures. Reports on the failures revealed that regulators had been aware of some issues but did not act promptly to resolve them. FDIC Chairman Martin Gruenberg acknowledged that the main problem was the examiners' failure to enforce compliance when issues were identified.

Investigation into Executive Bonus Payouts at Silicon Valley Bank

Barr disclosed that the Fed is investigating a controversial executive bonus payout at Silicon Valley Bank just hours before regulators closed the bank. This move was labeled as "outrageous" by the Vice Chair.

Republicans Urge More Efficient Use of Existing Tools

In response to these proposed changes, Republicans on the committee encouraged the officials to optimize their current tools rather than crafting new rules. They believe the crisis should not be used as an opportunity to further the progressive agenda of increased capital requirements and tighter bank regulations.

Regulators' First Congress Appearance Since Recent Bank Sale

The hearing marked the regulators' first appearance before Congress since agreeing to sell the failed First Republic Bank (OTC: FRCB) to JPMorgan Chase & Co (NYSE: JPM) earlier this month.

Former SVB CEO Testifies on Bank Run Triggers

Former Silicon Valley Bank CEO Greg Becker also testified before a separate panel. In his prepared testimony, he attributed the "unprecedented" bank run that led to the collapse of his firm to rapid interest rate increases and rumors fueled by social media.