A Federal Reserve governor flatly repudiated the notion that recent interest rate increases by the agency’s rate-setting committee led to the failure of three large regional banks this past spring and other trouble in the banking sector, according to the speech text released Friday.
In March and early May, three large regional banks failed: Silicon Valley Bank (SVB) of Santa Clara, Calif., Signature Bank of New York, N.Y. (both in March) and First Republic Bank of San Francisco, Calif. (in May).
Federal Reserve Board Gov. Chrisopher Waller, in a speech before a conference sponsored by Norges Bank, the International Monetary Fund (IMF), and the IMF Economic Review, in Oslo, Norway, said some have argued that the Fed’s tightening of monetary policy was significantly responsible for those failures and other stress in the banking system.
Waller is having none of that, according to his remarks.
Those making the argument, Waller indicated, say the Fed should have considered the impact that raising rates would take on the banks (in particular, by increasing interest rate risk).
“The Fed’s job is to use monetary policy to achieve its dual mandate, and right now that means raising rates to fight inflation,” Waller said. “It is the job of bank leaders to deal with interest rate risk, and nearly all bank leaders have done exactly that.
“I do not support altering the stance of monetary policy over worries of ineffectual management at a few banks,” he said.
Waller said the Fed would continue to pursue its monetary policy goals, “which ultimately support a healthy financial system.”
However, he said the agency would continue to use its financial stability stability tools to “prevent the buildup of risks in the financial system and, when needed, to address strains that may emerge.”
Gov. Christopher J. Waller, Financial Stability and Macroeconomic Policy, at “The Future of Macroeconomic Policy,” a conference sponsored by the Norges Bank, the International Monetary Fund, and the IMF Economic Review, Oslo, Norway\