Amit Seru, professor at Stanford Graduate School of Business and senior fellow at Hoover Institution, analyzes the Federal Reserve's recent overhaul of the US supervisory system following the collapse of Silicon Valley Bank. The review reveals supervisors were aware of significant interest rate risk and uninsured depositor exposure as early as 2022 but failed to take sufficient remedial action. Michelle Bowman, Fed vice-chair for supervision, commissioned the independent review which identifies a cultural bias toward inaction due to asymmetric pay-offs for supervisors.
The proposed changes include clarifying lines of responsibility, focusing on material risks, and introducing tools for earlier problem identification. A key structural reform involves replacing numerous supervisory committees with five regional leaders to enable faster decision-making. Separately, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have proposed facilitating wider sharing of supervisory information to add discipline on when to act.
While the current report attributes supervisory slowness to regulatory complexity, a prior 2023 review pointed to looser requirements and increased burden of proof. Both investigations concur that supervisors waited too long to act during the SVB crisis. The article underscores that effective supervision requires balancing capital regulations with decisive action under uncertainty, moving beyond Basel III standards toward a more risk-focused framework.
Source: Financial Times Companies · Summarized by HeadlinesBriefing