Powell Says ‘All Depositor Savings’ in U.S. are Safe

Article originally posted on HERE on March 22, 2023

Fed Chair Says He’s Prepared to ‘Use All Tools’ to Keep the U.S. Banking System ‘Safe and Sound’

Federal Reserve Chair Jerome Powell assured the country Wednesday that the central bank’s actions in recent weeks “demonstrate that all depositor savings in the banking system are safe.”

Powell was speaking at a press conference following the central bank’s announcement of a quarter-point increase in the federal-funds rate, to 4.75% to 5%.

“Our banking system is sound and resilient with strong capital and liquidity,” Powell said. “We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools as needed to keep it safe and sound.”

Powell added that the central bank is “committed to learning lessons” from the recent failure of Silicon Valley Bank and Signature Bank.

The Federal Reserve was the primary federal regulator of Silicon Valley Bank, though as a state-chartered institution the bank was also overseen by California’s Department of Financial Protection and Innovation.

The Fed has has come under fire in recent weeks for its oversight of the bank, with critics alleging that rapid expansion of the bank’s balance sheet, the interest-rate risk on its portfolio of long-term bonds and its high share of uninsured deposits should have been red flags.

Powell said that that the supervisory team at the San Francisco Fed was “very much engaged with the bank” and had issued repeated and “escalating warnings,” and that it is unclear why that engagement failed to produce results.

The Fed announced last week that Vice Chair for Supervision Michael Barr will conduct a review of the central bank’s regulation and supervision of Silicon Valley Bank in light of its failure.

“One way to think about the review that Vice Chair Barr is conducting is to try to understand how that happened and try to understand how we can do better and what policies we need to change,” Powell said.

Congress is also investigating the matter. The House Financial Services Committee and the Senate Banking Committee have both announced hearings into the bank failure to be held next week.

House Financial Services Chair Patrick McHenry said earlier Wednesday that he welcomes the Fed review, but that Congress has “an important role to play” in determining whether “regulators were asleep at the wheel.”

U.S. stocks were edging lower after the Fed’s interest-rate decision, with the Dow Jones Industrial Average DJIA, -1.63% and the S&P 500 SPX, -1.65% each showing modest losses.