The Federal Reserve is working to let its managers understand that they need to act “with force and agility” when they determine prospective issues at banks, Fed Vice Chairman for Supervision Michael Barr stated today. The Fed launched an internal report in April on the Silicon Valley Bank failure that concluded that its managers did not raise issues about the organization as it grew in size and intricacy. During a Q&A at The Clearing House yearly conference in New York City, Barr was asked what the Fed doing to alter its culture to prevent the errors of SVB in the future. He stated that in its training and assistance, the Fed is looking for to “empower” managers, so they feel comfy raising issues about the organizations they manage.
“One of the things that we’re doing is making sure that examiners feel empowered to act on the basis of information they have in front of them in a timely way, and make sure they have the tools to place if a firm is getting itself in trouble,” Barr stated. “We want to make sure we have a system that escalates appropriately so if there’s significant risks, you don’t wait years before action is taken.”
Barr didn’t offer information on what modifications were being made, however he included that the Fed isn’t thinking about handling banks. “Of course at the end of the day, the bank management and the board of directors at the bank are responsible for running the institution—that’s their job to do,” he stated. “And in this case with SVB and some other banks, the banks sorely mismanaged interest rate risk and liquidity risk.”
Barr states FedNow adoption will take some time
It takes a long period of time for any payments development to be commonly embraced in the economy, and the Federal Reserve’s just recently introduced FedNow immediate payments services is no exception, Vice Chairman Barr stated throughout the Q&A. Barr was inquired about the prospective competitors in between FedNow and TCH, and he stated there is space in the economy for both a public payment rails system and a personal one. “They really are complimentary,” he stated, including that in coming years, “you expect that banks would have access to both kinds of rails.”
In the meantime, Barr anticipates FedNow adoption to take a significant quantity of time, although when pushed, he didn’t offer any standards for what an effective rollout would appear like. “It takes a long time for people to get used to the idea to develop it,” he stated. “But right now what we’ve done is built the rails, and those rails can be used by the banking sector to provide new services to their customers, households and businesses.”