Federal Reserve Chairman Powell acknowledges the need to strengthen bank supervision: Many past experiences were "wrong," and bank runs can now happen in an instant.

Despite passing this year's stress tests, Federal Reserve Chairman Powell believes it is necessary to strengthen financial regulation and supervision.

In a speech delivered on Thursday, the 29th, Powell stated that the prominent bankruptcies of three medium-sized banks, including Silicon Valley Bank, from March to May this year, highlight the need for strong capital buffers to ensure the resilience of the banking system under high-pressure environments. He said,

These bank failures indicate that "for institutions of this scale, such as Silicon Valley Bank, we need to strengthen supervision and regulation. I look forward to evaluating proposals for making such changes and implementing them when appropriate."

In the internal review report on the bankruptcy of Silicon Valley Bank released by the Federal Reserve at the end of April this year, Vice Chairman Barr, responsible for financial industry regulation, summarized the four main causes of the bank's collapse, three of which were related to inadequate Fed supervision. Barr stated that the Fed's examiners identified risks but did not take sufficient measures to ensure that Silicon Valley Bank promptly resolved the issues. The report called for a broad strengthening of regulatory requirements for US financial institutions.

Barr revealed in the report that the Federal Reserve will reexamine a series of regulations applicable to banks with assets exceeding one trillion dollars, including stress tests and liquidity requirements, and will reassess how to supervise and regulate a bank's risk control for interest rate liquidity. On the day of the report's release, Powell issued a statement expressing his support for Barr's proposals to strengthen banking supervision measures in the coming years.

In his speech on Thursday, Powell mentioned that at the beginning of the crisis triggered by Silicon Valley Bank, regulators quickly took action to limit the spread of risks. However, he still summarized some lessons learned from the turmoil in the banking industry, one of which is the value of recognizing the formation of a crisis and responding decisively. He pointed out:

"When Silicon Valley Bank collapsed, it was clear that many standards, even those based on painful experiences, were wrong. Bank runs are no longer a matter of days or weeks; they can now happen almost instantly."

The day before Powell's speech, on Wednesday, the Federal Reserve had just released the results of its annual stress tests, which showed that even under severe assumptions such as a severe global recession, a 40% decline in commercial real estate prices, and a peak unemployment rate of 10% (an increase of 6.4 percentage points), all tested major banks were able to meet the minimum capital requirements. Barr stated that the test results confirm the strength and resilience of the banking system.

In his speech on Thursday, Powell reiterated that the US banking system remains healthy and resilient, and pointed out that deposit flows have stabilized and pressures have eased. He believes that if the capital of large banks is insufficient or liquidity is poor, it would be much more difficult to manage the banking events of the past few months. In his concluding remarks, he mentioned,

The bank runs and failures that have occurred this year have been painful, and they "remind us that we cannot predict all the pressures that time and circumstances will inevitably bring, and therefore we must never be complacent because of the resilience of the financial system." Last week's congressional hearing, Powell also mentioned banking regulation issues, stating that the Federal Reserve's regulation of Silicon Valley banks was not dereliction of duty, but insufficient in strength. The bank's collapse indicates the need to strengthen regulation of medium-sized lending institutions and upgrade relevant regulatory systems. This summer, the Federal Reserve will consider banking capital proposals.

At the time, Powell said that capital requirements for large banks could be raised by 20%. Capital requirements primarily affect the eight largest banks and do not affect banks with assets below $100 billion. Regulatory oversight of banks should be commensurate with their size and risk level, which is crucial.