What the Fed Missed in Its Bank Crisis Confessional
How did it fail to flag the risks that its interest-rate increases would pose?
Fess up.
Photographer: Al Drago/BloombergThe Federal Reserve has mostly done a good job of taking responsibility for its role in the US regional bank crisis. But there’s still one area where it falls short: recognizing its failure to flag the risks that rising interest rates would pose for the financial system.
The Fed’s review of the Silicon Valley Bank failure is unusually frank. It pointedly concludes that bank supervisors didn’t “fully appreciate the extent of the vulnerabilities,” that they didn’t “take sufficient steps to ensure” that the problems were fixed quickly enough, and that top officials “impeded effective supervision by reducing standards, increasing complexity and promoting a less assertive supervisory approach.”