Aurelia Butler

(Reuters) – Among the key findings revealed on Friday in the Federal Reserve and Federal Deposit Insurance Corp assessments of the causes of last month’s two huge U.S. bank failures, one major oversight deficiency stood out: Neither has enough bodies for the job.Staffing shortages strained supervisory resources, particularly at the FDIC’s New York regional office, in the years leading up to the collapse of Silicon Valley Bank and Signature Bank (OTC:SBNY) in March, both regulators said. The difficulty in filling roles was in sharp contrast to the swelling growth of bank deposits in the financial system, spurred in part by COVID-19-related relief and low interest rates.The reports showed both agencies struggling with some of the same staffing challenges all U.S. employers have faced in the hot job market that has emerged from the pandemic, with around 1.7 jobs open per unemployed job seeker and frequent job switching by workers. Both the Fed and FDIC highlighted that their oversight ranks grew leaner even as the institutions they were tasked with reviewing grew larger and more complex.In their respective reviews, the Fed and FDIC both cited poor risk management at SVB and Signature and a lack of urgency in addressing key shortcomings as the primary drivers of the twin failures. But the regulators also found that there were gaps in their supervisory processes that they say could have been improved. Between 2016 and 2022, as assets in the banking sector grew 37%, the Fed’s supervision headcount declined 3%, according to its report. And since 2020, an average of 40% of positions in the FDIC’s large bank supervisory staff in the New York region – responsible for supervising Signature – were vacant or filled by temporary employees, the FDIC said. Because of those vacancies at the FDIC’s regional office in New York, certain targeted reviews of Signature were not completed in a timely manner or at all, according to the FDIC. Those delays “slowed earlier identification” and reporting of weaknesses at the bank, the report said. At the Fed, supervisory hours at SVB declined at the same time the Santa Clara, California-based bank was experiencing rapid growth starting in 2017. While the Fed had 15 full-time employees staffed on the supervisory team for SVB, the bank received fewer supervisory resources through 2021 compared to similar banks. “Because of the perception of a strong liquidity position, supervisors did not pursue extensive risk-management reviews and supervisory staffing remained relatively light, despite the rapid growth” of SVB, the Fed’s report said. In the FDIC’s case, officials identified the high cost of living in New York, the impact of the pandemic and competition from other regulators and private sector firms as well as internal competition within the FDIC itself as the primary reasons for the staffing shortages. Although the FDIC said that it had taken steps to address the shortages, including reaching a new compensation agreement in 2022 that increased employee pay, it cautioned that more work needed to be done to bolster its supervisory staff. “Examination resource shortages, particularly in the New York region, are a mission-critical risk that will require a sustained whole-of-agency response,” the FDIC said. More

BOGOTA (Reuters) -Colombia’s central bank board raised the benchmark interest rate by 25 basis points to 13.25% on Friday, continuing a long tightening cycle amid persistent inflation and significant stability risks to the global financial system, it said.Four policymakers voted for the 25 basis point increase, while two wanted to keep the rate unchanged and one voted for a 50 basis point increase.While economic activity continues to slow, it is decelerating at a lower than expected rate, the board said in a statement.Annual consumer price growth remained relatively stable in March thanks to a slowdown in food price increases – which fell to 21.8% last month from 24.1% in February – but inflation expectations remain above target, the bank said. Consumer price growth in the 12 months through March was 13.34%, more than four times the bank’s 3% target.The bank’s technical team updated its growth forecast for 2023 for Latin America’s fourth-largest economy to 1%, up from 0.84%. It was impossible to say if the increase would be the last of this tightening cycle, which began in September 2021 and has seen the rate rise by 1,150 points, said board chief Leonardo Villar after reading the statement.The meeting was the last for Finance Minister Jose Antonio Ocampo, whose replacement was announced in a cabinet reshuffle earlier this week.The rate change was at odds with comments made by incoming minister Ricardo Bonilla, who takes office on May 1, who told local radio on Thursday he expected the board to hold the rate due to the fall in food prices.Though many market investors had hoped Ocampo would stay on the job to moderate some of Petro’s reform proposals, other analysts have said that concerns about Bonilla, previously finance secretary for Colombia’s capital Bogota, are exaggerated.Fifteen of 26 analysts in a Reuters survey last week predicted the seven-member board will hold the rate at 13%, while the remaining 11 projected an increase to 13.25%. More

The US Chamber of Commerce has warned that mounting Chinese scrutiny of American companies has “dramatically” raised the risks of doing business in the country, as signs emerge that Beijing may be cracking down on some foreign businesses. The powerful US business lobby group, led by chief executive Suzanne Clark, said in a statement on Friday it was “closely monitoring” China’s scrutiny of US professional services and due diligence firms. The warning comes days after the Financial Times reported that Chinese police had raided the Shanghai office of Bain, the US management consultancy. It also follows China’s introduction of a new counter-espionage law that has made foreign companies even more nervous. “In the context of China’s new counter-espionage law, which casts a wide net over the range of documents, data or materials considered relevant to national security, the additional scrutiny of firms providing essential business services dramatically increases the uncertainties and risks of doing business in the People’s Republic,” the US Chamber said.The lobby group also urged Beijing to consult with foreign businesses on the new law and issue regulations that provide “reasonable clarity” and address investors’ questions.Senior US officials and executives have become worried in recent weeks about a series of actions by Chinese authorities that have targeted US companies, particularly those involved in due diligence and risk assessment, or working on projects involving advanced technology supply chains. Last month, authorities raided the Beijing office of due diligence group Mintz Group and detained five employees.The Biden administration has also become increasingly concerned about the apparent rise in coercive activity in China. “We are concerned about a recent uptick in coercive actions targeting US firms, which comes at the same moment that China states that it is reopening for foreign investment,” Treasury secretary Janet Yellen said in a recent speech.The increased scrutiny, accompanied by widespread speculation about actions against other western groups operating in China, comes at a time when Beijing has been trying to send a message that it welcomes foreign investment as it ends a long period of zero-Covid restrictions.

The chamber said it welcomed such pledges of openness but “foreign investment will not feel welcomed in an environment where risk can’t be properly assessed and legal uncertainties are on the rise”.China last month opened a national security investigation into Micron, the Idaho-based manufacturer of memory chips. US officials believe Beijing is retaliating against measures taken by the Biden administration to make it much harder for Chinese companies to obtain advanced semiconductors.The mounting concern comes weeks before the G7 summit in Hiroshima when national leaders are expected to discuss economic coercion in the context of what measures they could take to push back against Chinese actions.Follow Demetri Sevastopulo on Twitter More

Below are key details from the government’s post-mortems, which underscore management failings at Silicon Valley Bank and Signature Bank (OTC:SBNY) and too-slow, too-soft responses from regulators.MANAGEMENT FAILURES* SVB was “acutely exposed” to risks from rising interest rates and slowing activity in the technology sector in ways that senior leaders and its board of directors did not appreciate. The Santa Clara, California-based bank failed its own internal liquidity stress tests, the Fed said in its report.* In 2022, SVB failed to test its capacity to borrow at the discount window and did not have appropriate collateral and operational arrangements in place to obtain contingency funding, the U.S. central bank said.* The Fed placed SVB on a list of banks with the highest ratio of unrealized losses relative to common equity tier 1 capital after a June 2022 special risk report.* The root cause of Signature’s failure was poor management, the FDIC said. The New York-based bank’s board of directors and management pursued “rapid, unrestrained growth” without adequate risk management. *Signature failed to understand the risk of its association with and reliance on crypto industry deposits. Signature saw $17.6 billion in deposit outflows last year, with digital asset-related deposits representing about 62% of that, the FDIC said.*The FDIC was considering pursuing two new enforcement actions related to weaknesses in its requirements to prevent money laundering and abide by sanctions and another related to longstanding risk management weaknesses, the regulator said.* The FDIC said it had issued a letter to Signature’s board of directors on March 11, notifying them it would pursue a formal enforcement action against the bank due to management’s inadequate response to its “precipitous decline.”TOO LAX, TOO LATE* The culture at the Fed changed following the 2018 legislative rollback of banking regulations. This shift contributed to more lax supervision, staff said in interviews, citing pressure to reduce burdens on banks and provide more proof for their conclusions.* The Fed’s judgments of SVB were “not always appropriate” given that bank’s weaknesses. In one case, SVB’s governance and controls were downgraded to deficient only in August 2022 despite earlier signs that management and board oversight needed improvements.* Fed supervisors discussed conducting an interest-rate risk review of SVB during 2022 but decided to prioritize other exams and defer it to the third quarter of 2023. * Fed officials initially recommended denying SVB’s 2022 request to make an investment in its London subsidiary due to supervisory issues, but ultimately dropped objections.*The FDIC’s communication of exam results to Signature’s board was often not timely, and in some cases significantly delayed.*The FDIC could have lowered Signature management’s rating sooner due to emerging weaknesses in corporate governance spotted beginning in 2021, it said.INADEQUATE GOVERNMENT RESOURCES* The Fed’s supervision headcount declined by 3% from 2016 to 2022, even as banking sector assets grew by 37%.* The level of Fed resources dedicated to its regional bank oversight “proved insufficient.” A single examiner was responsible for reviewing the bank’s interest-rate risk and investment portfolio, and in some cases, would also review liquidity and model risk management during a two-to-three-week timeframe.* From 2017 to 2023, the FDIC was not able to adequately staff an exam team dedicated to Signature.* Exam staff shortages, particularly in the New York region, are a “mission-critical risk”, the FDIC said. An average of 40% of its New York region large bank supervisory roles have been vacant or filled by temporary workers since 2020. More