The Federal Reserve (often referred to as the “Fed”) is becoming stricter with regional banks in the United States. After three banks faced difficulties earlier this year, the Fed is making sure other banks have solid plans to avoid problems in the future.
A Closer Look by the Fed
The Fed is sending private alerts to several banks that have money ranging from $100 billion to $250 billion. Some of these banks include Citizens Financial Group Inc., Fifth Third Bancorp, and M&T Bank Corp. These warnings aren’t public, but they are important. They cover various areas like how much money a bank has, how it plans to stay liquid (meaning having money available when needed), how it uses technology, and how it follows the rules.
Banks are being checked more thoroughly due to past problems with banks like First Republic Bank, Silicon Valley Bank, and Signature Bank. Michael Barr, an important person at the Fed, promised to be more careful and fast in their check-ups this year.
If banks get these warnings, called MRAs and MRIAs, they have to tell the Fed how they will fix the problem. This process can be expensive for banks. If they don’t solve the issue, they could get into bigger trouble.
Gary Bronstein, an expert from a law firm, said that banks need to solve these problems fast. If they don’t, they might face penalties.
Why This is Happening Now
Regulators are now keeping an eye on specific banks, called Category IV banks. These banks are similar in size to the ones that had issues this year. A few years ago, in 2018, Congress made a rule about which banks need more watchful eyes. The rule changed, and now banks with money from $50 billion to $250 billion need more attention.
Some other banks in this group are KeyCorp, Huntington Bancshares Inc., and Regions Financial Corp. They were also warned, but they chose not to comment about it.
One reason for the concern is how banks use their money. All banks in the US keep some money in safe places like government bonds. But if the value of these bonds drops, big banks have to report it. Smaller banks don’t. So, regulators are worried that the smaller banks might not show how much money they have lost.
Focus on Technology
Banks also need to be good with technology. The Fed is checking this. In some cases, they found problems. For example, two banks didn’t have quick access to emergency money when they needed it, which caused issues.
Banks often get these MRAs and MRIAs. As of the middle of last year, 18 big banks had 157 such warnings. But for smaller banks, many warnings mean they might have to hire more people to help follow the rules. If they don’t, they could be fined.
Michael Barr, from the Fed, said in a meeting in May that they are working harder to make sure banks are ready for any financial risks.
Learnings from Past Mistakes
When Silicon Valley Bank faced problems, a report in April showed that the Fed could have done a better job watching over it. They had already told the bank to be better at understanding risks. But the bank didn’t act quickly enough.
Goldman Sachs Group Inc., a big bank, is hiring many people to solve problems found by the Fed. Another company, Discover Financial Services, is preparing for potential problems with regulators.
James Stevens, a law expert, mentioned that there’s a lot of focus on how banks manage their money. He said it’s important to make sure banks are safe and doing things correctly.
About Author
