(Reuters) – The Federal Reserve is considering ending an exemption that allowed some midsize banks to hide losses on portfolio securities, the Wall Street Journal reported, signaling a likely tightening of banking supervision following the bankruptcies last month of Silicon Valley Bank and Signature Bank.
If approved, the move promoted by Fed Vice Chair for Supervision Michael Barr would mark a U-turn from the relaxation of supervision granted to some regional banks in 2019 by the Fed during the tenure of Barr’s predecessor Randal Quarles.
The exemption in question allows mid-sized banks not to report unrealized losses on portfolio securities designated as “available for sale,” which has allowed institutions to inflate the reported principal amount for regulatory reasons, it writes. the WSJ citing sources familiar with the situation.
SVB’s unrealized losses on securities such as Treasuries and mortgage-backed securities – stemming from the Fed’s aggressive interest rate hike over the past year, which has reduced their value – have been a key factor in the sudden collapse of the institution last month.
No comment from a Fed spokesman.
(Translated by Enrico Sciacovelli, editing by Sabina Suzzi)