A Federal Reserve official calls for an "independent" investigation into the reasons for the bankruptcy of US banks

2023-06-25 15:35:00

US Federal

banking crisis

It confirmed its rejection of proposals to increase the capital of banking institutions

Dubai – Al Arabiya.net

Posted on: June 25, 2023: 07:35 PM GST Last updated: June 25, 2023: 08:12 PM GST

An official at the US Federal Reserve called Sunday, during a seminar in Austria, for an “impartial and independent” investigation into the reasons for the bankruptcy of several US banks at the beginning of the year, rejecting proposals to increase the capital of banking institutions.

Michelle Bowman, a member of the US Federal Reserve Board of Governors, said that the report on the investigation, which was published at the end of April and prepared by Vice President of the Reserve Banking Supervision Michael Barr, “was not seen by the rest of the members of the Board before its publication.”

And she continued, “There is a legitimate question about whether this report provides sufficient answers to what happened,” according to Agence France-Presse.

The US Federal Reserve report, published at the end of April, supported tightening supervision of the banking sector, acknowledging the existence of loopholes in this regard with the bankruptcy of the Silicon Valley Bank and other banking institutions in early 2023.

But Bowman’s comments reflect divided opinions within the Board of Governors on how to proceed in terms of oversight and oversight.

During a congressional hearing Thursday, Federal Reserve Chairman Jerome Powell responded to information circulating about regulators increasing bank capital requirements, which could reach 20%.

“The capital requirements will be very limited for the eight major banking institutions,” he said, adding that other banks may be less affected by the capital increase.

But the new measures “should not include banks with assets of less than $100 billion.”

For her part, Bowman considered that “there is no way to strengthen the supervision of large banks,” adding that the review of supervision can only take place after “an impartial and independent investigation into what led to these bankruptcies.”

“We have to be careful about what went wrong” and “be proactive about what needs to be fixed and be aware of the unexpected consequences” that could result.

It also said “a misperception and misunderstanding of the root causes” of bankruptcies could have “negative effects on banks, their customers, the financial system and the economy in general”.

Bowman noted that an independent investigation would shed light on “the effectiveness of the necessary improvement in supervision and review of capital requirements and better prepare institutions for access to liquidity,” rather than “increasing capital requirements for a number of banks.”

“It is quite clear that there is a regulatory and supervisory reform under way, but we have to ensure that these changes happen in favor of a stronger and safer banking system,” she added.