Following the sudden collapse of Silicon Valley Bank, Federal Reserve Chair Jerome Powell expressed his confusion, saying, “How did this happen?” during a press conference held after the Federal Open Market Committee meeting on March 22.
Powell announced an internal investigation led by Vice Chairman Michael Barr to look into how the Fed supervised and regulated the bank. Powell confirmed that Barr will testify next week and stated that his only interest is in identifying what went wrong. SVB’s collapse has been linked to the Federal Reserve’s successive interest rate hikes aimed at taming inflation, which eroded SVB’s long-term bonds purchased at near-zero rates.
The news of SVB’s collapse caused a $160 billion wipeout in its market cap in 24 hours. The Federal Deposit Insurance Commission took possession of SVB to help depositors get access to their money, and the government put emergency measures in place to guarantee all deposits at SVB. Powell’s comments come as the Federal Reserve Board announced that it will increase interest rates by 25 basis points, which U.S. Senator Elizabeth Warren criticized, calling Powell a “dangerous man” who risks pushing the economy into a recession. Warren also blamed Powell’s “weak” regulatory approach toward large banks over the last five years as another factor in the recent banking crisis.