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)

(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.

United States News

FILE - Protesters shout before a speaking engagement by Ben Shapiro on the campus of the University...

Associated Press

Few Americans say conservatives can speak freely on college campuses, AP-NORC/UChicago poll shows

WASHINGTON (AP) — Americans view college campuses as far friendlier to liberals than to conservatives when it comes to free speech, with adults across the political spectrum seeing less tolerance for those on the right, according to a new poll. Overall, 47% of adults say liberals have “a lot” of freedom to express their views […]

7 hours ago

Fencer Kirsten Hawkes poses for a portrait at a fencing studio Tuesday, Sept. 12, 2023, in San Dieg...

Associated Press

Forced kiss claim leads to ‘helplessness’ for accuser who turned to Olympics abuse-fighting agency

DENVER (AP) — When Kirsten Hawkes, a one-time elite fencer, reached out to her childhood coach for advice about starting her own fencing club, their meeting turned awkward right away. It began, she said, with an unwanted kiss on the lips when the two met at a bar during a fencing tournament in Minneapolis last […]

8 hours ago

FILE - President Joe Biden and California Gov. Gavin Newsom wait for reporters to leave the room du...

Associated Press

California governor to name Laphonza Butler, former Kamala Harris adviser, to Feinstein Senate seat

LOS ANGELES (AP) — California Gov. Gavin Newsom will name Laphonza Butler, a Democratic strategist and adviser to Kamala Harris’ presidential campaign, to fill the vacant U.S. Senate seat held by the late Sen. Dianne Feinstein, a spokesman in his office said Sunday. In choosing Butler, Newsom fulfilled his pledge to appoint a Black woman […]

8 hours ago

File - The Southern University Human Jukebox marching band warms up before the 2023 National Battle...

Associated Press

Federal student loan payments are starting again. Here’s what you need to know

Federal student loan borrowers will need to start making payments again this month after a three-year-plus pause due to the pandemic.

9 hours ago

FILE - Former President Donald Trump speaks in Clinton Township, Mich., Wednesday, Sept. 27, 2023. ...

Associated Press

Donald Trump says he will be in courtroom for New York trial scrutinizing his business practices

NEW YORK (AP) — With control over some of his most prized real estate holdings in jeopardy, former President Donald Trump says he will make a rare, voluntary trip to court Monday for the start of a civil trial in a lawsuit that has already resulted in a judge ruling that he committed fraud in […]

9 hours ago

Associated Press

A woman who fled the Maui wildfire on foot has died after weeks in a hospital burn unit

HONOLULU (AP) — A woman who escaped a wildfire that destroyed Hawaii community by running through a burning field has died after spending more than seven weeks in a hospital burn unit. Laurie Allen died Friday at Straub Medical Center in Honolulu, according to a gofundme page set up for her and her husband, Perry […]

15 hours ago

Sponsored Articles


Ignite Digital

How to unlock the power of digital marketing for Phoenix businesses

All businesses around the Valley hopes to maximize their ROI with current customers and secure a greater market share in the digital sphere.



When most diets fail, re:vitalize makes a difference that shows

Staying healthy and losing weight are things many people in Arizona are conscious of, especially during the summer.


OCD & Anxiety Treatment Center

5 mental health myths you didn’t know were made up

Helping individuals understand mental health diagnoses like obsessive compulsive spectrum disorder or generalized anxiety disorder isn’t always an easy undertaking. After all, our society tends to spread misconceptions about mental health like wildfire. This is why being mindful about how we talk about mental health is so important. We can either perpetuate misinformation about already […]

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