Recent bank failures show need for vigilance: US Federal Reserve

Washington [US], May 16 (ANI): The banking system in the US is sound and resilient, with strong capital and liquidity but recent stress displays the need for vigilance as the country’s central bank assesses and responds to such risks, the US Federal Reserve has said.

The Federal Reserve Board publishes its semiannual ‘Supervision and Regulation’ Report to inform the public and provide transparency about its supervisory and regulatory policies and actions and current banking conditions.

One of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which was struggling, first collapsed on March 10, after a run on the bank by the depositors.

Its closure led to a contagion effect and the subsequent shutting down of other banks, including First Republic Bank which failed on May 1. US-based First Republic Bank was closed by the local regulators and entered into an agreement with JP Morgan Chase Bank to purchase and assume all deposits and assets of the troubled bank to protect depositors.

The collapse of a few regional banks in the US, which started with Silicon Valley Bank, has sent ripples across the global banking industry and posed fears of a contagion effect across economies.

“The recent failures of three large US banks have also demonstrated the risks of concentrated funding sources and poor management of interest rate risks. As interest rates have risen, fair values of investment securities have declined significantly,” the US Fed report said.

The report added that delinquency rates for some loan segments have increased from the low levels seen over the past several years. A situation in which borrowed money is not paid or paid back when it should have been is called delinquency.