Failures last spring highlight need for suitable rules, supervision for banks of that size, Powell contends

Having in place appropriate rules and supervisory practices for banks of the size that failed in March and early May, and the resulting stress for other banks, highlight the importance of appropriate rules and supervision, the chair of the Federal Reserve Board said Wednesday.

Testifying before the House Financial Services Committee for the semiannual monetary policy report to Congress, Fed Board Chair Jerome H. (“Jay”) Powell referred to the failure of three large regional banks last spring: Silicon Valley Bank (SVB) of Santa Clara, Calif., Signature Bank of New York, N.Y. (both in March), and First Republic Bank (in May). The banks were closed after seeing extensive runoffs in deposits.

Powell reiterated to the committee that the U.S. banking system is sound and resilient, a phrase he has often repeated in public remarks over the last several months. “The Federal Reserve, together with the Treasury Department and the Federal Deposit Insurance Corporation, took decisive action in March to protect the U.S. economy and to strengthen public confidence in our banking system,” Powell said.

However, Powell indicated that the Fed continues to follow vulnerabilities in the banking system, particularly in ensuring “we have the appropriate rules and supervisory practices for banks of this size,” referring to the closed banks.

“We are committed to addressing these vulnerabilities to make for a stronger and more resilient banking system,” he said.

Fed Board Chair Jerome H. Powell: Semiannual Monetary Policy Report to the Congress