In the first congressional hearing into the collapse of two US regional lenders and the ensuing market chaos, the top banking regulator at the Federal Reserve criticised Silicon Valley Bank on Tuesday over its faulty risk modelling.
"They were issued a matter requiring immediate attention based on the inaccuracy of their interest rate risk modelling," Michael Barr, the Federal Reserve's vice chairman for supervision, told legislators.
"Essentially, the risk model was not at all aligned with reality."
Mr Barr said he was first made aware of the interest rate risk-related issues at Silicon Valley Bank in mid-February, just weeks before its failure.
"The staff highlighted the interest-rate risk that was present at Silicon Valley Bank and indicated that they were in the middle of a further review," he said.
Supervisory staff at the Fed had previously raised serious concerns over SVB's interest-rate risk and liquidity management, and demanded fixes from the bank in November 2021, Mr Barr said.
In mid-2022, Fed staff deemed the bank's management to be deficient and barred the lender from growing through mergers or acquisitions, he said.
Fed supervisors took those issues to SVB's chief financial officer in October 2022, Mr Barr said, and raised other concerns to SVB management in November.
"I believe that is the first time that I was told about interest-rate risk at Silicon Valley Bank."
Mr Barr and Federal Deposit Insurance Corporation chairman Martin Gruenberg indicated that they were looking into tightening rules for banks and applying stricter oversight for companies similar to SVB.
The hearing was the first of what is expected to be several into the banking tumult.
The House financial services committee will hear from the same regulators on Wednesday, and congressional leaders have already said they want to question former chief executives of the two banks on what went wrong.
Reuters contributed to this report
TO A LAND UNKNOWN
Director: Mahdi Fleifel
Starring: Mahmoud Bakri, Aram Sabbah, Mohammad Alsurafa
Rating: 4.5/5
Sholto Byrnes on Myanmar politics
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Director: Joseph Kosinski
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Avatar: Fire and Ash
Director: James Cameron
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Killing of Qassem Suleimani
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%3Cp%3EAverage%20amount%20of%20biofuel%20produced%20at%20DIC%20factory%20every%20month%3A%20%3Cstrong%3EApproximately%20106%2C000%20litres%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3EAmount%20of%20biofuel%20produced%20from%201%20litre%20of%20used%20cooking%20oil%3A%20%3Cstrong%3E920ml%20(92%25)%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3ETime%20required%20for%20one%20full%20cycle%20of%20production%20from%20used%20cooking%20oil%20to%20biofuel%3A%20%3Cstrong%3EOne%20day%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3EEnergy%20requirements%20for%20one%20cycle%20of%20production%20from%201%2C000%20litres%20of%20used%20cooking%20oil%3A%3Cbr%3E%3Cstrong%3E%E2%96%AA%20Electricity%20-%201.1904%20units%3Cbr%3E%E2%96%AA%20Water-%2031%20litres%3Cbr%3E%E2%96%AA%20Diesel%20%E2%80%93%2026.275%20litres%3C%2Fstrong%3E%3C%2Fp%3E%0A
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Biosafety Level 1
The lowest safety level. These labs work with viruses that are minimal risk to humans.
Hand washing is required on entry and exit and potentially infectious material decontaminated with bleach before thrown away.
Must have a lock. Access limited. Lab does not need to be isolated from other buildings.
Used as teaching spaces.
Study microorganisms such as Staphylococcus which causes food poisoning.
Biosafety Level 2
These labs deal with pathogens that can be harmful to people and the environment such as Hepatitis, HIV and salmonella.
Working in Level 2 requires special training in handling pathogenic agents.
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Strict safety and handling procedures are in place. There must be double entrances to the building and they must contain self-closing doors to reduce risk of pathogen aerosols escaping.
Windows must be sealed. Air from must be filtered before it can be recirculated.
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The highest level for biosafety precautions. Scientist work with highly dangerous diseases that have no vaccine or cure.
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The drill
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