Powell committed to learning from recent bank failures

Several Senate Republicans questioned the new banking regulations when Federal Reserve Chair Jerome Powell spoke before the Senate Banking Committee on Thursday, specifically whether or not small banks would be subject to increased capital requirements.

Powell stated that a plan is under consideration and has already been discussed within the Fed, but he is unable to comment at this time.

Fed Chair Powell gave the assurance that the new banking regulations will be “skewed” in favour of the biggest banks and sizable regional institutions, much like the bankrupt Silicon Valley Bank.

“I would say we are committed — and I am personally committed — to learning the right lessons from what happened to Silicon Valley Bank,” Powell said. “I think there is a clear need to strengthen both supervision and regulation of banks of that size.”

Democratic senator from New Jersey Bob Menendez questioned Powell on the likelihood of bank failures in the face of falling property values and rising interest rates for commercial mortgages that are due in the next two years. According to Powell, the Fed has “identified those banks” and the problem is not one that larger banks are facing.

“Some of the smaller banks have seen it,” Powell said, adding “And there is a supervisory toolkit where we work with banks to try to help them resolve those issues by raising capital or dealing with what’s happening in the office space nationally”.

The tech-heavy Nasdaq rallied 0.5% mid-Thursday morning as Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee that more rate hikes are coming.

Mega-cap tech stocks like Apple and Amazon, chosen for their enormous balance sheets and the hoopla around artificial intelligence, have been defensive choices for investors concerned about an economic collapse this year.

Though lately, their progress has stalled. The Nasdaq has dropped for the previous three trading days after a significant run that saw titans like Apple and Microsoft reach record highs last week. Microsoft gained 1.2%, Nvidia added 0.3%, and Apple shares increased by 1.3%. Before plunging once more, the S&P 500 momentarily veered into positive territory.

A recession, projected to commence between the third quarter of this year and the first quarter of 2024, might result from tight monetary policy combined with low government spending. However, Powell reminded legislators on Wednesday that when inflation slows, the Fed’s policy decisions will change.

“Now we’re moderating that pace, much as you might do if you were to be driving 75 miles an hour on a highway, then 50 miles an hour on a local highway, then as you get closer to your destination you try to find that destination you slow down even further,” he said.