US banking crisis broadly improved since SVB fail, Powell says

Fed chairman believes First Republic's acquisition by JP Morgan is 'good outcome for the banking system'

A report from the Federal Reserve concluded Silicon Valley Bank collapsed because of a 'textbook case of mismanagement'. Reuters
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Federal Reserve chairman Jerome Powell said the banking crisis that has hit US markets has “broadly improved” since Silicon Valley Bank collapsed in early March.

The collapse of SVB and two other regional banks — Signature and First Republic — were the three largest recorded since Washington Mutual's failure in 2008.

The mid-sized lenders' failure sparked fears that the world would again be faced with a financial crisis, but Mr Powell told reporters on Wednesday that the “US banking system is banking system is sound and resilient”.

Conditions have “broadly improved since early March,” he said told reporters after the Fed raised its interest rates by 25 basis points.

First Republic has so far been hit the hardest by SVB's collapse and shares of the lender plunged despite a group of major US banks offering a $30 billion lifeline.

The regional bank was acquired by JP Morgan Chase on Monday after it was seized by California state regulators.

Mr Powell said it was typically not good policy for big banks to acquire mid-sized ones such as First Republic.

But he believed JPMorgan's acquisition of First Republic was an exception and “a good outcome for the banking system”.

As a result of the acquisition, all depositors of First Republic become depositors of JP Morgan.

“I don't have an agenda to further consolidate banks,” Mr Powell said. “I personally have long felt that having small, medium and large-sized banks is a great part of our banking system.”

He said the sale of First Republic was “an important step towards drawing a line under that period of severe stress” the banking sector endured.

Biden speaks to Americans after bank collapse

Biden speaks to Americans after bank collapse

Mr Powell's remarks on Wednesday were his first public comments after a review report last week found that SVB was not subjected to the same type of regulatory standards as other banks.

He said he did not think that the run of deposits on SVB was possible.

“It's clear that we need to strengthen both supervision and regulations for banks of this size," Mr Powell said.

Asked if he had any regrets on how the Fed handled the supervision of SVB, he said: “I've had a few."

“Who doesn't look back and think that you could have done things differently?"

The Fed previously anticipated that the banking crisis would result in tighter lending conditions, and Mr Powell said the Fed would continue to factor in conditions in the banking sector.

The Fed will next week release the Senior Loan Officer Opinion Survey, a poll of 80 US banks used to analyse lending conditions.

Updated: May 03, 2023, 8:54 PM