Fed Blocked Mention of Regulatory Flaws in Silicon Valley Bank Rescue

Congress passed a law to lighten rules for small and midsize banks in 2018. Though many Democrats signed on to the legislation, some have remained skeptical of it — and particularly of how the Fed went about implementing the rollbacks.

The Fed implemented the changes under the watch of Randal K. Quarles, then the central bank’s vice chair for supervision. Mr. Quarles also shifted the tone on day-to-day bank supervision at the Fed, insiders and outsiders have said, making it less intense and more predictable.

Mr. Powell, who was chair at the time, voted for the Fed’s decisions — and some Democrats, including Ms. Warren, hold him responsible for the changes. He has said publicly that he defers to the supervisory vice chair on regulatory matters. Mr. Quarles has since left the central bank, and its new vice chair, Michael S. Barr, is leading the Fed’s review of bank supervision. The Fed will release the results on May 1.

Mr. Quarles’s moves on supervision were cited derisively by some participants in the discussions over how to protect Silicon Valley Bank depositors in Washington over the weekend, a person familiar with the talks said this week. They grumbled over a quote Mr. Quarles gave in 2018 to The Wall Street Journal, saying that changing bank supervision culture at the Fed “will be the least visible thing I do and it will be the most consequential thing I do.”

As Democrats focus on deregulation in the Silicon Valley Bank episode, some Republicans have focused more on the role of bank overseers at the Federal Reserve Bank of San Francisco. Others have loosely blamed the bank’s failure, without evidence, on the California lender’s commitments to workplace diversity and environmentally and socially conscious investments.

Article source: https://www.nytimes.com/2023/03/16/business/fed-regulation-svb.html