According to the Wall Street Journal, US Justice Department has launched an investigation into the failure of Silicon Valley Bank. The US Justice Department is apparently investigating the bank’s abrupt collapse, which has caused waves in markets throughout the world. The bank was closed down on Friday after a bank run. In the meantime, the Securities and Exchange Commission has opened a parallel inquiry.
According to the WSJ, as part of the investigation, regulators are looking into stock sales by officers of Silicon Valley Bank Financial Group, which owned the bank. SEC Chair Gary Gensler previously stated that the agency’s focus is on monitoring market stability and finding and punishing any sort of misbehavior that may endanger investors during moments of turbulence.
Since the Silicon Valley Bank and the Signature Bank failed, regulators are scrambling to limit the damage so that it does not spread to the rest of the business. Meanwhile, Moody’s downgraded the US banking system’s outlook to “negative” from “stable” on Tuesday.
SVB Financial Group and two other executives were sued by shareholders earlier this week. They accused them of withholding information about how rising interest rates would make its Silicon Valley Bank unit vulnerable to a bank run.
The Fed is considering harsher regulations for midsize banks
Following the failure of Silicon Valley Bank, the Federal Reserve is exploring stronger restrictions and oversight for midsize banks, according to Reuters. Fed Vice Chair for Supervision Michael Barr is conducting an investigation into the $209 billion bank’s demise. The assessment is expected to result in tightened requirements for banks with assets ranging from $100 billion to $250 billion.
The evaluation, which will be released by May 1, will be in addition to Barr’s ongoing assessment of bank capital regulations. According to the Wall Street Journal, smaller banks would face stricter capital and liquidity requirements, as well as perhaps increased yearly “stress tests.”
The new CEO of Silicon Valley Bank encourages clients to return their money
Meanwhile, Silicon Valley Bank’s new CEO, Tim Mayopoulos, has advised the bank’s top venture capital clients to transfer their deposits to its newly formed bridge firm. The development came as a result of a virtual gathering. (aristocratps.com) The Federal Deposit Insurance Corporation chose the former Fannie Mae CEO to lead Silicon Valley Bridge Bank NA (FDIC).
At the meeting, Mayopoulos also assured clients that deposits at the bank were now as safe as deposits at any other American bank or organization.
Customers seek out alternative banks
Following the demise of Silicon Valley Bank, customers have flocked to banking behemoths such as JPMorgan Chase & Co, Bank of America Corp, and Citigroup Inc. Investors are concerned about the financial viability of smaller regional lenders, thus the transfers have reached billions of dollars.
Nonetheless, lenders are cautious not to attract customers from other banks for fear of hastening the outflows.