(Bloomberg) -- Federal Reserve Chair Jerome Powell conceded that top officials were stumped at the sudden collapse of Silicon Valley Bank earlier this month, which spurred widespread panic of a deeper banking crisis and in turn upended global financial markets.
“The question we were all asking ourselves over that first weekend was, ‘How did this happen?’” Powell said Wednesday in a press conference following the US central bank’s March meeting.
The problems at SVB, a bank that was overly reliant on uninsured deposits and holdings in Treasuries that have declined in value in the past year, were raised by on-the-ground examiners from the Fed’s San Francisco branch months ago. It remains unclear why SVB was not made to address the problems, and whether either the head of the San Francisco Fed or Powell knew about the escalating issues.
The Fed launched an investigation into the matter days after SVB was taken into receivership. Since that failure, two other banks have collapsed and a shift is underway in the broader economy, with tighter credit conditions likely to hamper business investment and consumer behavior for some time.
Powell said he didn’t know whether the board in Washington was aware of the bank supervisors’ warnings.
“We’re doing the review of supervision and regulation,” Powell said. “My only interest is that we identify what went wrong here.”
Minutes from the Fed’s meeting that took place Jan. 31 and Feb. 1 indicated that at least some officials were concerned about vulnerabilities to financial stability. Several of the 19 policymakers discussed issues including runs on nonbank financial institutions and the impact of large unrealized losses on some banks’ portfolios.
SVB’s collapse was set in motion by a run on deposits after its clients quickly saw that it held a disproportionate share of assets in Treasuries, which have depreciated in value over the past year as the Fed rapidly increased interest rates. SVB then had to sell bonds at a loss to keep up with withdrawals.
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