Senator Elizabeth Warren has called for an investigation into the Federal Reserve System, after the collapse of Silicon Valley Bank and Signature Bank.
A study suggests that nearly 200 other US banks are at risk of failing if depositors demand their holdings, because they contain large portions of their assets in interest-rate sensitive financial instruments.
Both SVB and Signature invested their deposits in higher-yield, long-term mortgage-backed securities and bonds with low interest rates during the pandemic, only for the assets' value to drop sharply when the Fed raised rates this month.
Massachusetts Senator, and member of the Senate banking committee, Elizabeth Warren, has called for an investigation into the Federal Reserve System over weakened regulatory processes.
Warren criticised the reduction of regulations for large banks that had requested it during informal office meetings.
According to Warren, the banks claimed that they were just like small, local banks, and thus lowering the regulations would benefit both types of banks equally.
Furthermore, she stated that the weakening of regulations allowed banks like SVB and Signature Bank to invest deposits in higher-yield, long-term mortgage-backed securities and bonds with low interest rates during the pandemic, only for the assets' value to drop rapidly when the Fed raised rates this month.
The New York Post reported that 200 other US banks may struggle if depositors request their holdings due to containing large portions of their assets in interest-rate-sensitive financial instruments.
Following the collapse of SVB and Signature Bank, the study suggests that these banks could soon face difficulties.
Meanwhile, according to CNN Business, banks like SVB had around 5% of their assets in bonds in early 2020 but by early 2022 this number rose to 14%.
Similarly, roughly 6% of the banks' assets were in mortgage-backed securities (MBS) during 2020, rising to 15% by the end of last year.
Speaking on "This Week" on ABC, Warren said, "The banks have to be careful not to leave themselves that exposed… And Congress has to be sure with its oversight role that the regulators are doing their job to make sure the banks are safe and sound."