There will be stricter rules and supervision after US bank failures

Federal Reserve intends to tighten regulations on banks with more than $100 billion in assets and provide supervisors with more aggressive scrutiny of lenders after several recent bank failures, its top regulatory official told Congress yesterday.

Fed vice-chairman for supervision Michael Barr said the agency was "carefully considering" rule changes for larger regional banks with more than $100 billion in assets, including requiring them to include unrealized losses on their books when considering capital levels. Such lenders previously had relaxed rules under Donald Trump.

Regulators too passive?

Banking regulators were under intense scrutiny after the collapse Silicon Valley Bank and Signature Bank, which triggered the collapse of global banking stocks and sparked fears of infecting the rest of the banking sector.

Top officials from the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency also testified before the House Financial Services Committee.

They also pledged to take a tougher stance and embolden their superiors to be more aggressive after their own "autopsy reports" of failures showed that the "guardians" were aware of some of the problems but did not act quickly enough to resolve them .

“The main problem was that the controllers did not enforce compliance when problems were identified” said FDIC chairman Martin Gruenberg.

Strict supervision better than more capital

Republicans on the committee, however, urged officials to consider using existing tools more effectively, rather than writing new rules.

"We have used this crisis to justify the long-held priority of progressives to increase capital requirements and impose more regulation on banks," added Patrick McHenry, who chairs the panel. Blaine Luetkemeyer, on the other hand, said that "better supervision would be better than more capital".

Yesterday's hearing marks the first time regulators have appeared before Congress since the FDIC agreed to sell First Republic Bank, JPMorgan Chase & Co this month.

Rapidly rising interest rates are the main cause of bank runs

While vowing to develop tougher rules, the agencies have also been criticized for failing to identify and prevent weaknesses before lenders failed.

Also on Tuesday, former SVB chief executive Greg Becker testified before a separate panel at the Senate Banking Committee hearing in Washington Capitol. In prepared testimony, he said rapid interest rate hikes and rumors on social media led to an "unprecedented" banking run that sank his company. The hearing was held to investigate the recent bankruptcies of Silicon Valey Bank and Signature Bank.