financetom
News
financetom
/
News
/
Two former Fed officials warn regulators’ supervision of banks is like a ‘SciFi’ movie: ‘It is mostly special effects’
News World Market Environment Technology Personal Finance Politics Retail Business Economy Cryptocurrency Forex Stocks Market Commodities
Two former Fed officials warn regulators’ supervision of banks is like a ‘SciFi’ movie: ‘It is mostly special effects’
Jan 18, 2024 7:45 PM

  In the aftermath of the swift collapse of three U.S. banks—Silicon Valley Bank, Signature Bank, and Silvergate Bank—regulators have faced intense criticism from both political parties. Democratic Senator Elizabeth Warren criticized regulatory oversight, suggesting that regulators had failed in their duties concerning Silicon Valley Bank (SVB), while Republican Senator Tim Scott echoed this sentiment, asserting that regulators seemed to be inattentive.

  Michael Barr, the Federal Reserve's top banking regulator, acknowledged SVB's failure as a result of mismanagement but also admitted that recent events raise questions about evolving risks and potential improvements in regulatory actions. He indicated that it's crucial to identify and address the issues fully and is considering bolstering banking regulations.

  Two former Fed officials with extensive experience at the central bank argue that the quality of supervision over U.S. lenders has been declining for years due to a cultural shift within the regulatory environment. James Thomson, formerly with the Federal Reserve Bank of Cleveland, and Walker Todd, a retired legal officer from the Federal Reserve Bank of New York, assert in an Institute for New Economic Thinking article that there has been a transition away from the stringent "audit/compliance model" which relied on hands-on field checks and rigorous financial audits conducted by regulators.

  They claim that the current "consultative approach" trusts banks' own theoretical risk models too heavily, which can lead to manipulated data or overlooked structural details, ultimately resulting in a loss of institutional knowledge. This change began after William Taylor, known for his robust supervisory stance, left his position at the Fed’s Board of Governors. The authors attribute the decline in effective supervision to a power shift towards the Division of Research and Statistics during Alan Greenspan's tenure as Fed Chair in the 1990s.

  According to Todd and Thomson, the increased influence of academic research at the Fed led to a reliance on more theoretical, model-based supervision, where stress tests and other evaluations were based on banks' self-reported forecasts and data. Even following the Global Financial Crisis of 2008, regulators continued to reinforce this model-based approach, potentially weakening bank supervision and contributing to the recent instability experienced by some financial institutions.

  Subscribe to Well Adjusted, our newsletter offering practical strategies for enhanced work performance and improved living, brought to you by the Fortune Well team. Sign up today.

Comments
Welcome to financetom comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
Related Articles >
Oil Update: Russia
Oil Update: Russia
Mar 23, 2024
Brent Crude Oil News and Analysis Over 150 missiles and drones fired in latest attack on UkraineOil prices ease into the weekend despite attacks on energy infrastructureIG client sentiment focuses on recent changes in positioning to arrive at bearish biasThe analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our...
Markets Week Ahead: Gold Overreacts, Sterling Sinks and USD Advances
Markets Week Ahead: Gold Overreacts, Sterling Sinks and USD Advances
Mar 25, 2024
Gold Whipsaws and Signals a Potential Momentum Shift The precious metal rose phenomenally in the wake of the FOMC meeting and updated summary of economic projections. The US dollar acted as the release valve for all the hawkish sentiment that had been priced into the market. US activity, jobs and inflation data printed on the higher side of estimates in...
Yen Update: USD/JPY Dips after BoJ Minutes, Concern over Volatile Moves
Yen Update: USD/JPY Dips after BoJ Minutes, Concern over Volatile Moves
Mar 25, 2024
Japanese Yen (USD/JPY) Analysis BoJ minutes extend the ‘carry trade’ as officials rule out rapid rate hikesLike clockwork, Japan’s top currency diplomat voices dissatisfaction with recent yen volatility, weaknessIG Client sentiment ‘mixed’ despite massive short positioningThe analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library BoJ...
US Dollar Forecast: PCE Data to Steal Show; EUR/USD, USD/JPY, GBP/USD Setups
US Dollar Forecast: PCE Data to Steal Show; EUR/USD, USD/JPY, GBP/USD Setups
Mar 23, 2024
Most Read: U.S. Dollar Outlook Market Sentiment: USD/JPY, USD/CAD, USD/CHF The U.S. dollar, as measured by the DXY index, strengthened this past week, closing at its best level since mid-February on Friday. Despite initial losses following the Fed’s dismissal of renewed inflation risks and indications that it was still on track for 75 basis points of easing this year, the...
Copyright 2023-2026 - www.financetom.com All Rights Reserved