US Federal Reserve’s Michael Barr Urges Stronger Banks Following a Local Crisis
US Federal Reserve Vice Chair for Supervision, Michael S. Barr, addressed the capital requirements for large banks in a recent speech. He highlighted the importance of taking action to ensure banks can withstand unexpected risks, citing the recent crisis that affected several small banks in the US.
Barr specifically referred to the stress caused by bank runs, like the one experienced by Silicon Valley Bank (SVB) in March 2023. Drawing lessons from these incidents, Barr discussed the need to reevaluate liquidity supervision, regulation of interest rate risk, and incentive compensation in order to strengthen the banking system.
Bitcoin’s price experienced fluctuating movements after Barr’s comments on reforms in the banking sector. While the cryptocurrency managed to maintain support around $30,000 during the weekend, it could potentially gain more momentum in response to the proposed changes by the Fed Vice Chair, aimed at ensuring long-term stability in the United States‘ banking system.
Robust Capital Requirements for US Banks:
In a notable development, Barr suggested changes to regulations that would eliminate banks‘ reliance on their own risk estimates. Instead, he proposed a more transparent and consistent approach to be adopted, particularly considering the recent bank runs. Barr mentioned that utilizing standardized credit risk approaches for supervising stress tests is a sensible option.
It’s worth noting that during March and April 2023, three banks, namely Silicon Valley Bank, Signature Bank, and First Republic Bank, experienced a significant number of depositors withdrawing their assets, causing considerable stress on US banking stocks.
Regarding the risks associated with big banks, Barr explained that the suggested changes would mandate banks with assets totaling $100 billion or more to include unrealized gains and losses from their available-for-sale (AFS) securities when calculating their regulatory capital.
Additionally, the Fed Vice Chair proposed modifications to how the potential loss resulting from fluctuations in market prices, including interest rates, equity prices, foreign exchange rates, and commodities, is assessed.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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