NATIONAL NEWS

Federal Reserve may tighten financial rules after US bank failures, Powell says

Jun 29, 2023, 1:43 AM | Updated: 3:14 am

FILE - Federal Reserve Chairman Jerome Powell speaks during a House Financial Services Committee he...

FILE - Federal Reserve Chairman Jerome Powell speaks during a House Financial Services Committee hearing in Washington, Wednesday, June 21, 2023. Federal Reserve Chair Jerome Powell says the central bank may have to tighten its oversight of the American financial system after the failure of three large U.S. banks this spring. (AP Photo/Andrew Harnik, File)
Credit: ASSOCIATED PRESS

(AP Photo/Andrew Harnik, File)

WASHINGTON (AP) — Federal Reserve Chair Jerome Powell said Thursday that the central bank may have to tighten its oversight of the American financial system in the wake of the failure of three large U.S. banks this spring.

Powell said in prepared remarks delivered at a banking conference in Madrid that tougher regulations put in place after the 2007-2008 financial crisis have made large multinational banks much more resilient to widespread loan defaults, such as the bursting of the housing bubble that led to that crisis.

But the First Republic Bank exposed different vulnerabilities that the Fed will likely address through new proposals, Powell said.

He did not provide details, but other Fed officials have said banks should be required to hold more capital in reserve to guard against loan losses.

Such proposals are likely to face resistance from the banking industry and some congressional Republicans, who argue that the Fed had the necessary tools to prevent the bank collapses but failed to use them.

One reason regulators missed the threats to the three banks was “the natural human tendency to fight the last war,” Powell said.

The 2008 financial crisis occurred because of widespread defaults after the housing bubble burst. But rapid increase in interest rates sharply lowered the value of its bond holdings, because they paid out lower interest rates than newer bonds.

“These events suggest a need to strengthen our supervision and regulation of institutions of the size of SVB,” Powell said. “I look forward to evaluating proposals for such changes and implementing them where appropriate.”

In a question and answer session, he indicated that the rules needed to be updated to account for how quickly a bank run could happen.

“A bank run used to be people standing in line at an ATM,” the Fed chief said. “That’s very different from what we saw at Silicon Valley Bank,” with depositors using smartphones to move money instantly.

Fed supervisors had spotted bank vulnerabilities, including exposure to rising rates, but were working within a system that moved too slowly to head off trouble, Powell said.

“The supervisors were on the right issues, but they were operating under a standard playbook where you escalate things fairly carefully, fairly slowly,” he said.

An ongoing review of Fed supervision would “try to find ways to be more agile and, where appropriate, more forceful,” Powell said.

Banks with $100 billion to $250 billion in assets — which included all three failed banks — were freed from some requirements in 2018 under legislation passed by Congress and rules issued by the Fed.

Last week, Powell faced significant pushback from Republicans during House and Senate hearings over the potential for tighter rules. Michael Barr, the Fed’s top regulator, has said the central bank might require larger banks to hold more capital in reserve.

Yet GOP members of Congress charge that such requirements would limit banks’ ability to lend and slow the economy.

Powell said during those hearings that a proposal might be issued next month. But he repeated Thursday that any new rules would require a public comment process and would be phased in over time, meaning they might not come into effect for several years.

“The bank runs and failures in 2023 … were painful reminders that we cannot predict all of the stresses that will inevitably come with time and chance,” Powell said. “We therefore must not grow complacent about the financial system’s resilience.”

___

AP Business Writer David McHugh contributed from Frankfurt, Germany.

National News

The Butler Farm Show, site of a campaign rally for Republican presidential candidate former Preside...

Associated Press

Gunman in Trump rally attack flew drone over rally site in advance of event, official says

WASHINGTON (AP) — The gunman in the attempted assassination of former President Donald Trump is believed to have flown a drone around the Pennsylvania rally site ahead of time in an apparent attempt to scope out the site before the event, a law enforcement official said Saturday. The drone has been recovered by the FBI, […]

4 hours ago

Republican presidential candidate former President Donald Trump and Melania Trump during the final ...

Associated Press

Trump campaign releases letter on his injury, treatment after last week’s assassination attempt

NEW YORK (AP) — Donald Trump’s campaign released an update on the former president’s health Saturday, one week after he survived an attempted assassination at a rally in Butler, Pennsylvania. The memo, from Texas Rep. Ronny Jackson, who served as Trump’s White House physician, offers new details on the nature of the GOP nominee’s injuries […]

4 hours ago

Associated Press

California officials say largest trial court in US victim of ransomware attack

LOS ANGELES (AP) — A ransomware attack has shut down the computer system of the largest trial court in the country, officials with the Superior Court of Los Angeles County said. The cybersecurity attack began early Friday and is not believed to be related to the faulty CrowdStrike software update that has disrupted airlines, hospitals […]

4 hours ago

iPhones are displayed during an event in Cupertino, Calif., on Tuesday, Sept. 10, 2019. A 12-year-o...

Associated Press

A 12-year-old girl is accused of smothering her 8-year-old cousin over an iPhone

HUMBOLDT, Tenn. (AP) — A 12-year-old girl in Tennessee has been charged with murder, accused of smothering her 8-year-old cousin as the younger girl slept. A relative said they had been arguing over an iPhone. A security camera recorded the killing, inside the bedroom they shared on July 15 in Humboldt, Tennessee, the county prosecutor […]

5 hours ago

Associated Press

Man in custody after 4 found dead in Brooklyn apartment attack, NYPD says

NEW YORK (AP) — The New York Police Department says it has taken a man into custody in connection with the deaths of a grandmother, a mother and her two children in the family’s Brooklyn apartment. Police said in a statement Saturday that officers responded to a report late Friday night of an assault, and […]

5 hours ago

CrowdStrike...

MATT O'BRIEN, THE ASSOCIATED PRESS

How a faulty CrowdStrike update crashed computers around the world

All it took was one faulty CrowdStrike software update to cause global disruptions that grounded flights, and other services.

7 hours ago

Federal Reserve may tighten financial rules after US bank failures, Powell says