"It appeared that contagion from SVB's failure could be far-reaching and cause damage to the broader banking system," Michael Barr, the Fed’s Vice Chair for Supervision, said in a speech released ahead of his testimony to the US Senate on Tuesday on what triggered the banking crisis and the next steps planned by the central bank.
Silicon Valley faced huge withdrawals of customer depositors nearly three weeks ago, and was followed in rapid succession by another bank, Signature, that faced a similar predicament, forcing the Federal Deposit Insurance Corp to take control of the two. A third lender, First Republic, was rescued later by a consortium of banks led by JPMorgan Chase, the largest US banking group.
The crisis took on an international dimension after major Swiss investment bank Credit Suisse underwent financial troubles of its own that forced it to be bought by rival and compatriot UBS. Just last week, Deutsche Bank of Germany was in the news as well as its shares tumbled amid a spike in the cost of insuring it against a potential credit crunch.
The crisis on the US front appeared to abate somewhat on Monday as First Citizens BancShares Inc said it will acquire the deposits and loans of the failed Silicon Valley Bank, closing one chapter in the crisis of confidence that has ripped through financial markets.
Barr assured Americans that the country’s banking system was safe as a whole, describing it as sound and resilient, with strong capital and liquidity.
"I am committed to ensuring that the Federal Reserve fully accounts for any supervisory or regulatory failings, and that we fully address what went wrong," he said of the review undertaken by the Fed of the failings at Silicon Valley Bank and the steps the Fed would take to contain the crisis.
The review undertaken by the Fed of SVB’s failure suggested that the central bank needs to enhance the so-called stress testing of banks with multiple scenarios that can capture a wider range of risk and explore changes to liquidity rules and other reforms that could improve resiliency, Barr said.