The Federal Reserve of the United States and other world top central banks, including the Swiss National Bank, the Bank of Canada, the Bank of England, the Bank of Japan, and the European Central Bank, are taking coordinated action to boost liquidity via standing U.S. dollar liquidity swap line arrangements.
The two entities have agreed to increase the frequency of 7-day maturity operations from weekly to daily, which will be effective starting today, March 20th, 2023.
Fed’s action could help curb financial troubles
The Federal Reserve balance sheet is an important tool used to combat potential financial turmoil. The bank has taken a proactive approach in working with global top banks such as the Swiss National Bank on the standing U.S. dollar liquidity swap line arrangements, which could help to avoid a significant financial crisis in the future.
The action taken will help ensure the stability of all banking institutions in the United States and prevent further collapse of big banks.
The Fed’s efforts are expected to have a positive impact on global economies. By improving liquidity and the flow of financial resources, the Fed is looking to strengthen the US economy and bolster it against potential downturns in other global markets.
The Federal Reserve continues to monitor economic conditions closely as they look to mitigate any long-term risks posed by the pandemic.
By taking a proactive stance and joining forces with other global financial institutions, the Fed is looking to avoid a prolonged recession in the United States and maintain stability in the global economy as markets adjust to post-pandemic conditions.
Silicon Valley Bank’s risks were known
ABC News has confirmed that the Federal Reserve was aware of risks to Silicon Valley Bank more than a year before its collapse.
According to reports from The New York Times and The Wall Street Journal, the Fed had cited concerns over the bank’s management as early as 2019. The Fed also identified significant vulnerabilities in the bank’s containment of risk, but no action was taken to rectify them.
As interest rates begin to rise, potential risks are posed to Silicon Valley Bank and other banks across the country. Last fall, employees of the Federal Reserve of San Francisco met with top officials at Silicon Valley Bank to address the lack of accessible cash and the potential risks posed by rising interest rates.
According to The Times, former Silicon Valley Bank CEO Greg Becker was a board member at the Federal Reserve Bank of San Francisco up until two days before the bank’s collapse.
The bank’s deposit base, which draws heavily from startup firms in the technology industry, tripled in size during the pandemic-era tech boom between 2020 and 2022.
With this considerable increase in cash reserves at Silicon Valley Bank and other banks around the country, the Fed is taking a proactive stance to ensure the stability of all financial institutions in the United States.
The bank conducted a full supervisory review of Silicon Valley Bank to assess its governance, controls, and risk management systems.
The review rated the bank deficient in these categories and highlighted the need for more robust governance, improved risk management practices, and enhanced capitalization.
