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America’s employers added a healthy 253,000 jobs in April, evidence of a labor market that still shows surprising resilience despite rising interest rates, chronically high inflation and a banking crisis that could weaken the economy.

The unemployment rate dipped to 3.4%, matching a 54-year low, the Labor Department said Friday. But the jobless rate fell in part because 43,000 people left the labor force, the first drop since November, and were no longer counted as unemployed.

In its report Friday, the government noted that while hiring was solid in April, it was much weaker in February and March than it had previously estimated. And hourly wages rose last month at the fastest pace since July, which may alarm the inflation fighters at the Federal Reserve.

April’s hiring gain compares with 165,000 in March and 248,000 in February and is still at a level considered vigorous by historical standards. The job market has remained durable despite the Fed’s aggressive campaign of interest rate hikes over the past year to fight inflation. Layoffs are still relatively low, job openings comparatively high.

Still, the ever-higher borrowing costs the Fed has engineered have weakened some key sectors of the economy, notably the housing market. But overall, the job market has remained stable. Fed Chair Jerome Powell himself sounded somewhat mystified this week by the job market’s durability. The central bank has expressed concern that a robust job market exerts upward pressure on wages — and prices. It hopes to achieve a so-called soft landing – cooling the economy and the labor market just enough to tame inflation yet not so much as to trigger a recession.

One way to do that, Powell has said, is for employers to post fewer job openings. And indeed, the government reported this week that job openings fell in March to 9.6 million — a still-high figure but down from a peak of 12 million in March 2022 and the fewest in nearly two years.

At the staffing firm Robert half, executive director Ryan Sutton said he still sees “pent-up demand” for workers.

Applicants, not employers, still enjoy the advantage, he said: To attract and keep workers, he said, businesses — especially small ones — must offer flexible hours and the chance to work from home when possible.

“Giving a little bit of schedule flexibility so that somebody might finish their work late or early so that they can take care of children and family and elderly parents — these are the things that the modern employee needs,” Sutton said. “To not offer those and to try to still have a 2019 business model of five days a week in an office — that’s going to put you at a disadvantage” in finding and retaining talent.

Powell has said he is optimistic that the nation can avoid a recession. Yet many economists are skeptical and have said they expect a downturn to begin sometime this year.

Still, steadily rising borrowing costs have inflicted some damage. Pounded by higher mortgage rates, sales of existing homes were down a sharp 22% in March from a year earlier. Investment in housing has cratered over the past year.

America’s factories are slumping, too. An index produced by the Institute for Supply Management, an organization of purchasing managers, has signaled a contraction in manufacturing for six straight months.

Even consumers, who drive about 70% of economic activity and who have been spending healthily since the pandemic recession ended three years ago, are showing signs of exhaustion: Retail sales fell in February and March after having begun the year with a bang.

The Fed’s rate hikes are hardly the economy’s only serious threat. Congressional Republicans are threatening to let the federal government default on its debt, by refusing to raise the limit on what it can borrow, if Democrats don’t accept sharp cuts in federal spending. A first-ever default on the federal debt would shatter the market for U.S. Treasurys — the world’s biggest — and possibly cause an international financial crisis.

The global backdrop already looks gloomier. The International Monetary Fund last month downgraded its forecast for worldwide growth, citing rising interest rates around the world, financial uncertainty and chronic inflation.

Since March, America’s financial system has been rattled by three of the four biggest bank failures in U.S. history. Worried that jittery depositors will withdraw their money, banks are likely to reduce lending to conserve cash. Multiplied across the banking industry, that trend could cause a credit crunch that would hobble the economy.
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The U.S. Small Business Administration has named Abdirahman Kahin, a Somali American restaurant chain owner in Minneapolis, Minnesota, as the National Small Business Person of the Year for 2023. Mohamud Mascadde in Minneapolis and Abdulaziz Osman Washington have more in this report, narrated by Salem Solomon. Videographers: Abdulaziz Osman and Mohamud Mascadde
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Adidas is set to update investors Friday about the unsold Yeezy shoes that have put the German sportswear giant in a predicament since it cut ties with Kanye West over his antisemitic comments late last year.

Executives are expected to tackle the issue when the company reports first-quarter results Friday which will likely show a 4% decline in net sales to $5.07 billion, according to a company-compiled consensus.

Investors have high hopes new CEO Bjorn Gulden can turn Adidas around: the stock has gained around 65% since Nov. 4 when the former Puma CEO was first floated as a successor to Kasper Rorsted, despite Adidas warning it could make a $700 million loss this year if it writes the Yeezy shoes off entirely.

Adidas has been in discussions over the footwear, including with people who “have been hurt” by West’s antisemitic comments, Gulden said in March, but there are no easy fixes.

The value of Yeezy shoes in the resale market has rocketed since Adidas stopped producing them, with some models more than doubling in price, but the company has yet to decide what to do with its unsold stock.

If Adidas decides to sell the shoes, any proceeds should go towards efforts to fight antisemitism, said Holly Huffnagle, U.S. Director for Combating Antisemitism at the American Jewish Committee, a non-governmental organization.

“The challenge is if these shoes are going to be out there and be worn by people, we must ensure that the antisemitic messaging of the shoes’ creator doesn’t spread,” she said.

Gulden in March said the company could donate the proceeds of the Yeezy sale to charities, but Adidas has given no updates since. “We continue to evaluate options for the use of the existing Yeezy inventory,” an Adidas spokesperson said, declining to comment on the possible timeline for a decision.

The market would welcome a resolution, but it may be too early given the complexities involved, said Geoff Lowery, analyst at Redburn in London, who sees a donation to charities as the most likely outcome.

The Anti-Defamation League, an international Jewish non-governmental organization based in New York, told Reuters it “stands ready and prepared to work with Adidas.”

Adidas in November donated more than $1 million to the organization.

The American Jewish Committee met with Adidas executives in December to discuss their commitment to reject antisemitism.

Adidas said it continues to “stand with the Jewish community in the fight against antisemitism and with all communities around the world facing injustice and discrimination.”

Shareholders want Adidas to draw a line under the Yeezy episode and develop ways to reboot the brand.

“Being successful with Yeezy probably made Adidas lazy on finding other growth drivers,” said Cedric Rossi, nextgen consumer analyst at Bryan Garnier in Paris.
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The Federal Reserve, the U.S. central bank, raised its benchmark interest rate by another quarter percentage point on Wednesday but signaled that it could pause further increases as it watches what effect a string of rate hikes has on controlling months of increasing consumer prices.

The policymakers’ action, its 10th straight decision to push rates higher, moves the benchmark rate to a range of 5% to 5.25%, a 16-year high. The increased rate is again likely to increase borrowing costs for consumers using their credit cards to buy everyday goods and big-ticket items and loan rates for businesses paying for supplies they need.

In announcing the latest rate increase, policymakers said they would now watch to see whether further rate increases are necessary to curb inflation. U.S. consumer prices rose at an annual pace of 5% through March, which is down sharply from the 9.1% pace nearly a year ago but still well above the 2% goal that the Fed policymakers strive for.

The Fed’s wait-and-see stance is a shift in policy. For months, the Federal Reserve had said it assumed further rate increases would be needed.

The policy-setting Federal Open Market Committee said in a statement, “In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

“A decision on a pause was not made today,” Fed Chair Jerome Powell told reporters.

Despite the rising cost of spending for U.S. consumers, the world’s largest economy has remained resilient in its recovery from the 2020 coronavirus pandemic. Employers have continued to add hundreds of thousands of jobs month after month and the unemployment rate remains at a five-decade low.

Even so, three banks have failed in the last two months after bad decisions on investments by their managers and runs on deposits by their customers.

Some economic analysts continue to predict the American economy will slip into a recession later this year but such ongoing predictions over the last year have so far proven wrong.

The theory behind raising interest rates is it makes it more expensive for families and businesses to borrow and thus will curb economic growth and tame inflation.

Higher borrowing costs slow both consumer spending and hiring by employers. The concern for Fed policymakers, however, is to not slow the economy too much, to push it into a recession. 
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President Joe Biden next week will meet with the Democratic and Republican leaders of the House and Senate in an effort to avoid a catastrophic default on the nation’s debts, which could occur in as little as one month.

The United States government’s ability to borrow money is constrained by a limit on the amount of debt the U.S. Treasury Department can incur, known as the debt ceiling. The debt ceiling is currently set at $31.4 trillion, which the government hit in January, forcing the Treasury to use what it refers to as “extraordinary measures” to continue paying the nation’s bills without going into default.

On Monday, Treasury Secretary Janet Yellen warned that the extraordinary measures will soon be exhausted, possibly as soon as June 1, and that unless Congress authorizes more borrowing, the country will soon be unable to pay all of its obligations on time.

In a letter to lawmakers on Monday, Yellen said it was urgent that Congress acts quickly “to preserve the full faith and credit” of the U.S., reminding them that waiting until the last minute can result in damage to the country, even if technical default is averted.

“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen wrote.

Also on Monday, the nonpartisan Congressional Budget Office issued a statement essentially agreeing with Yellen.

“Because tax receipts through April have been less than the Congressional Budget Office anticipated in February, we now estimate that there is a significantly greater risk that the Treasury will run out of funds in early June,” it said.

Same goal, different path

Leaders of both parties have expressed their desire to avoid a federal default, but they advocate different methods of doing so.

House Republicans, led by Speaker Kevin McCarthy, say they intend to raise the debt ceiling, but only after Democrats agree to a slate of broad spending cuts that would eviscerate Biden’s domestic agenda and institute a number of policies popular with conservatives, including new work requirements on individuals receiving public assistance.

Last week on a party-line vote, the House passed the Limit, Save, Grow Act, which would raise the debt ceiling by up to $1.5 trillion through March 31, 2024. The bill would cut government spending by $4.8 trillion over the next decade. Much of the savings would come from unspecified spending cuts spread across much of the government.

Specific programs targeted for major cuts include recent increases to the budget of the Internal Revenue Service, a controversial student debt relief measure taken by the White House, and spending on renewable energy that the president has championed.

‘Hostage-taking’

The threat implicit in the Republican position is that if Democrats fail to accept the cuts, the country will advance closer and closer to default until lawmakers strike a deal, or the government finds itself unable to pay its bills.

Biden and Democratic leaders in the House and Senate argue that Republicans’ strategy, which they criticize as “hostage-taking,” is irresponsible. They have called for Congress to pass a “clean” debt ceiling extension, meaning a bill with no additional provisions attached. They frequently point out that Congress passed three clean debt limit bills during former President Donald Trump’s term, all with Democratic support.

Any debt limit increase would have to pass both the House and the Senate, and with the latter under slim Democratic control, the House bill gutting Biden’s agenda is a non-starter.

House Democrats on Tuesday said they would attempt to force a vote on a clean debt limit increase through an arcane mechanism known as a “discharge petition,” which allows a majority of members of the House to demand a vote on a bill without the cooperation of leadership. Discharge petitions are rarely successful, and because Republicans have the majority in the House, this one would require at least five Republicans to join the Democrats — an unlikely prospect.

Impact of default could be global

Experts warn that if Congress and the White House are unable to strike a deal, and the U.S. finds itself unable to pay its bills on time, the impact on the economy — for the United States and the broader world — could be devastating.

“The result would be a self-inflicted severe recession that is totally unnecessary and obviously counterproductive,” Mark Hamrick, Washington bureau chief for Bankrate, told VOA. “It’s been demonstrated time and time again that the debt ceiling is not a useful tool in restraining federal spending. Therefore, we’re talking about adding potential downside to the U.S. and global economies for no reason, and at a time when there’s already heightened concern about the risk of recession.”

Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics, told VOA that the disruption caused by a default by the U.S. Treasury would reverberate far beyond the U.S. itself.

He pointed out that the Great Recession of 2008-2009 was a global financial crisis partially triggered by the collapse of two major U.S. firms — the investment bank Lehman Brothers, which failed, and the insurance and financial services conglomerate American International Group, which was bailed out.

“That really caused a huge panic around the world, not just in the U.S.,” Gagnon said. “And realize that the U.S. Treasury is far, far bigger and has far, far more financial [obligations] being held by other people.”
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The sowing season is in full swing in Ukraine despite a series of significant challenges that farmers face as Russia continues its war on the country. The agricultural industry faces mined fields, instability with the Black Sea Grain Initiative, and a ban on the export of four key products to five European Union countries. Lesia Bakalets has more from Warsaw, Poland. VOA footage by Daniil Batushchak.
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U.S. job openings fell in March to the lowest level in nearly two years, a sign that the American labor market is cooling in the face of higher interest rates.

Employers posted 9.6 million vacancies in March, down from nearly 10 million in February. Layoffs rose to the highest level since December 2020, the Labor Department reported Tuesday.

The American job market is strong but losing momentum. The Federal Reserve has raised its benchmark interest rate nine times in just over a year in a bid to rein in inflation that last year hit a four-decade high. And higher borrowing costs are taking an economic toll.

The job market is strong but losing momentum.

Monthly job openings had never exceeded 10 million until 2021, then reeled off 20 straight months above that threshold. The streak ended in February.

The Labor Department on Friday released the jobs report for last month. Forecasters surveyed by the data firm FactSet expect that employers added fewer than 182,000 jobs last month, the third straight monthly drop since payrolls rose by a robust 472,000 in January.

The unemployment rate is expected to blip up to 3.6% in April, a couple of notches above January’s half-century low 3.4%.

 
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The California Department of Financial Protection and Innovation said Monday it had closed First Republic Bank and agreed a deal to sell its assets to JPMorgan Chase & Co and National Association, in what is the third major U.S. bank to fail in two months. 

JPMorgan bank was one of several interested buyers including PNC Financial Services Group, and Citizens Financial Group Inc, which submitted final bids on Sunday in an auction being run by U.S. regulators, sources familiar with the matter said over the weekend. 

A deal for First Republic, which had total assets of $229.1 billion as of April 13, comes less than two months after Silicon Valley Bank and Signature Bank failed amid a deposit flight from U.S. lenders, forcing the Federal Reserve to step in with emergency measures to stabilize markets. Those failures came after crypto-focused Silvergate voluntarily liquidated. 
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A restaurant on the outskirts of Nairobi skimps on the size of its chapatis — a flaky, chewy Kenyan flatbread — to save on cooking oil. Cash-strapped Pakistanis reluctantly go vegetarian, dropping beef and chicken from their diets because they can no longer afford meat. In Hungary, a cafe pulls burgers and fries off the menu, trying to dodge the high cost of oil and beef.

Around the world, food prices are persistently, painfully high. Puzzlingly, too. On global markets, the prices of grains, vegetable oil, dairy and other agricultural commodities have fallen steadily from record highs. But the relief hasn’t made it to the real world of shopkeepers, street vendors and families trying to make ends meet. 

“We cannot afford to eat lunch and dinner on most days because we still have rent and school fees to pay,” said Linnah Meuni, a Kenyan mother of four. 

She says a 2-kilogram (4.4-pound) packet of corn flour costs twice what she earns a day selling vegetables at a kiosk. 

Food prices were already running high when Russia invaded Ukraine in February last year, disrupting trade in grain and fertilizer and sending prices up even more. But on a global scale, that price shock ended long ago. 

The United Nations says food prices have fallen for 12 straight months, helped by decent harvests in places like Brazil and Russia and a fragile wartime agreement to allow grain shipments out of the Black Sea. 

The U.N. Food and Agriculture Organization’s food price index is lower than it was when Russian troops entered Ukraine. 

Yet somehow exorbitant food prices that people have little choice but to pay are still climbing, contributing disproportionately to painfully high inflation from the United States and Europe to the struggling countries of the developing world. 

Food markets are so interconnected that “wherever you are in the world, you feel the effect if global prices go up,” said Ian Mitchell, an economist and London-based co-director of the Europe program at the Center for Global Development. 

Why is food price inflation so intractable, if not in world commodity markets, then where it counts — in bazaars and grocery stores and kitchen tables around the world? 

Joseph Glauber, former chief economist at the U.S. Department of Agriculture, notes that the price of specific agricultural products — oranges, wheat, livestock — are just the beginning. 

In the United States, where food prices were up 8.5% last month from a year earlier, he says that “75% of the costs are coming after it leaves the farm. It’s energy costs. It’s all the processing costs. All the transportation costs. All the labor costs.”

And many of those costs are embedded in so-called core inflation, which excludes volatile food and energy prices and has proven stubbornly hard to wring out of the world economy. Food prices soared 19.5% in the European Union last month from a year earlier and 19.2% in the U.K., the biggest increase in nearly 46 years. 

Food inflation, Glauber says, “will come down, but it’s going to come down slowly, largely because these other factors are still running pretty high.” 

Others, including U.S. President Joe Biden, see another culprit: a wave of mergers that have, over the years, reduced competition in the food industry. 

The White House last year complained that just four meatpacking companies control 85% of the U.S. beef market. Likewise, just four firms control 70% of the pork market and 54% of the poultry market. Those companies, critics say, can and do use their market power to raise prices. 

Glauber, now a senior research fellow at the International Food Policy Research Institute, isn’t convinced that consolidation in agribusiness is to blame for persistently high food prices. 

Sure, he says, big agribusinesses can rake in profits when prices rise. But things usually even out over time, and their profits diminish in lean times. 

“There’s a lot of market factors right now, fundamentals, that can explain why we have such inflation,” he says. “I couldn’t point my finger at the fact that we just have a handful of meat producers.” 

Outside the United States, he says, a strong dollar is to blame for keeping prices high. In other recent food-price crunches, like in 2007-2008, the dollar wasn’t especially strong. 

“This time around, we’ve had a strong dollar and an appreciating dollar,” Glauber said. “Prices for corn and wheat are quoted in dollars per ton. You put that in local currency terms, and because of the strong dollar, that means they haven’t seen” the price drops that show up in commodity markets and the U.N. food price index. 

In Kenya, drought added to food shortages and high prices arising from the impact of war in Ukraine, and costs have stayed stubbornly high ever since. 

Corn flour, a staple in Kenyan households that is used to make corn meal known as ugali, has doubled in price over the last year. After the 2022 elections, President William Ruto ended subsidies meant to cushion consumers from higher prices. Nonetheless, he has promised to bring down corn flour prices. 

Kenyan millers bought wheat when global prices were high last year; they also have been contending with high production costs arising from bigger fuel bills. 

In response, small Kenyan restaurants like Mark Kioko’s have had to raise prices and sometimes cut back on portions. 

“We had to reduce the size of our chapatis because even after we increased the price, we were suffering because cooking oil prices have also remained high,” Kioko says.

In Hungary, people are increasingly unable to cope with the biggest spike in food prices in the EU, reaching 45% in March. 

To keep up with rising ingredient costs, Cafe Csiga in central Budapest has raised prices by around 30%. 

“Our chef closely follows prices on a daily basis, so the procurement of kitchen ingredients is tightly controlled,” said the restaurant’s general manager, Andras Kelemen. The café even dropped burgers and French fries from the menu. 

Joszef Varga, a fruit and vegetable seller in Budapest’s historic Grand Market Hall, says his wholesale costs have risen by 20% to 30%. All his customers have noticed the price spikes — some more than others. 

“Those with more money in their wallets buy more, and those with less buy less,” he said. “You can feel it significantly in people, they complain that everything is more expensive.” 

In Pakistan, shop owner Mohammad Ali says some customers are going meatless, sticking to vegetables and beans instead. Even the price of vegetables, beans, rice and wheat are up as much as 50%. 

Sitting at her mud-brick home outside the capital of Islamabad, 45-year-old widow Zubaida Bibi says: “Our life was never easy, but now the price of everything has increased so much that it has become difficult to live.” 

This month, she stood in a long line to get free wheat from Prime Minister Shahbaz Sharif’s government during the Islamic holy month of Ramadan. Bibi works as a maid, earning just 8,000 Pakistani rupees ($30) a month. 

“We need many other things, but we don’t have enough money to buy food for our children,” she said.

She gets money from her younger brother Sher Khan to stay afloat. But he’s vulnerable, too: Rising fuel costs may force him to close his roadside tea stall. 

“Increasing inflation has ruined my budget,” he said. “I earn less and spend more.” 
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U.S. regulators are trying to clinch a sale of First Republic Bank over the weekend, with roughly half a dozen banks bidding, sources said on Saturday, in what is likely to be the third major U.S. bank to fail in two months.

Citizens Financial Group Inc., PNC Financial Services Group and JPMorgan Chase & Co. are among bidders vying for First Republic in an auction process being run by the Federal Deposit Insurance Corp, according to sources familiar with the matter. US Bancorp was also among banks the FDIC had asked to submit a bid, according to Bloomberg.

Guggenheim Securities is advising the FDIC, two sources familiar with the matter said.

The FDIC process kicked off this week, three of the sources said. The bidders were asked to give nonbinding offers by Friday and were studying First Republic’s books over the weekend, one of the sources said.

A deal is expected to be announced on Sunday night before Asian markets open, with the regulator likely to say at the same time that it had seized the lender, three of the sources said. Bids are due by Sunday noon, one of the sources said.

Currently, the interested banks are evaluating options to see what they would like to bid for, one of the sources said, adding that it is likely that lenders will bid for all of FRC’s deposits, a sizable chunk of its assets and some of its liabilities.

US Bancorp did not immediately respond to a request for comment. First Republic, the FDIC, Guggenheim and the other banks declined to comment.

Difficult deal

A deal for First Republic would come less than two months after Silicon Valley Bank and Signature Bank failed amid a deposit flight from U.S. lenders, forcing the Federal Reserve to step in with emergency measures to stabilize markets.

While markets have since calmed, a deal for First Republic would be closely watched for the amount of support the government has to provide.

The FDIC officially insures deposits up to $250,000. But fearing further bank runs, regulators took the exceptional step of insuring all deposits at both Silicon Valley Bank and Signature.

It remains to be seen whether regulators would have to do so at First Republic as well. They would need approval by the Treasury secretary, the president and super-majorities of the boards of the Federal Reserve and the FDIC.

In trying to find a buyer before closing the bank, the FDIC is turning to some of the largest U.S. lenders. Large banks had been encouraged to bid for FRC’s assets, one of the sources said.

JPMorgan already holds more than 10% of the nation’s total bank deposits and would need a special government waiver to add more.

“For a large bank to buy all or most of the bank could be healthier for First Republic customers because it could put them on a broader and more stable platform,” said Eugene Flood, president of A Cappella Partners, who serves as an independent director at First Citizens BancShares and Janus Henderson and was speaking in a personal capacity. First Citizens agreed to buy failed Silicon Valley Bank last month.

Stunning fall

First Republic was founded in 1985 by James “Jim” Herbert, son of a community banker in Ohio. Merrill Lynch acquired the bank in 2007, but it was listed in the stock market again in 2010 after being sold by Merrill’s new owner, Bank of America Corp., following the 2008 financial crisis.

For years, First Republic lured high-net-worth customers with preferential rates on mortgages and loans. This strategy made it more vulnerable than regional lenders with less-affluent customers. The bank had a high level of uninsured deposits, amounting to 68% of deposits.

The San Francisco-based lender saw more than $100 billion in deposits fleeing in the first quarter, leaving it scrambling to raise money.

Despite an initial $30 billion lifeline from 11 Wall Street banks in March, the efforts proved futile, in part because buyers balked at the prospect of having to realize large losses on its loan book.

A source familiar with the situation told Reuters on Friday, that the FDIC decided the lender’s position had deteriorated and there was no more time to pursue a rescue through the private sector.

By Friday, First Republic’s market value had hit a low of $557 million, down from its peak of $40 billion in November 2021.

Shares of some other regional banks also fell on Friday, as it became clear that First Republic was headed for an FDIC receivership, with PacWest Bancorp down 2% after the bell and Western Alliance down 0.7%.
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The Federal Reserve blamed last month’s collapse of Silicon Valley Bank on poor management, watered-down regulations and lax oversight by its own staffers, and it said the industry needs stricter policing on multiple fronts to prevent future bank failures. 

The Fed was highly critical of its own role in the bank’s failure in a report released Friday. The report, compiled by Michael Barr, the Fed’s top regulator, said bank supervisors were slow to recognize blossoming problems at Silicon Valley Bank as it quickly grew in size in the years leading up to its collapse. The report also pointed out underlying cultural issues at the Fed, where supervisors were unwilling to be hard on bank management when they saw growing problems. 

Those cultural issues stemmed from legislation passed in 2018 that sought to lighten regulation for banks with less than $250 billion in assets, the report concluded. The Fed also weakened its own rules the following year, which exempted banks below that threshold from stress tests and other regulations. Both Silicon Valley Bank and New York-based Signature Bank, which also failed last month, had assets below that level. 

The changes increased the burden on regulators to justify the need for supervisory action, the report said. “In some cases, the changes also led to slower action by supervisory staff and a reluctance to escalate issues.” 

Separate reports also released Friday by the Federal Deposit Insurance Corp. and the Government Accountability Office, the investigative arm of Congress, also faulted the Fed and other regulators for a lack of urgency regarding Silicon Valley’s deficiencies. About 95% of the bank’s deposits exceeded the FDIC’s insurance cap and the deposits were concentrated in the technology industry, making the bank vulnerable to a panic. 

The Fed also said it planned to reexamine how it regulates larger regional banks such as Silicon Valley Bank, which had more than $200 billion in assets when it failed, although less than the $250 billion threshold for greater regulation. 

“While higher supervisory and regulatory requirements may not have prevented the firm’s failure, they would likely have bolstered the resilience of Silicon Valley Bank,” the report said. 

Tighter regulation seen

Banking policy analysts said the trio of critical reports made it more likely regulation would be tightened, though the Fed acknowledged it could take years for proposals to be implemented. 

The reports “provide a clear path for a tougher and more costly regulatory regime for banks with at least $100 billion of assets,” said Jaret Seiberg, an analyst at TD Cowen. “We would expect the Fed to advance proposals in the coming months.” 

Alexa Philo, a former bank examiner for the Federal Reserve Bank of New York and senior policy analyst at Americans for Financial Reform, said the Fed could adopt stricter rules on its own, without relying on Congress. 

“It is long past time to roll back the dangerous deregulation under the last administration to the greatest extent possible and pay close attention to the largest banks so this crisis does not worsen,” she said. 

The Fed also criticized Silicon Valley Bank for tying executive compensation too closely to short-term profits and the company’s stock price. From 2018 to 2021, profit at SVB Financial, Silicon Valley Bank’s parent, doubled and the stock nearly tripled. 

The report also pointed out that there were no pay incentives at the bank tied to risk management. Silicon Valley Bank notably had no chief risk officer at the firm for roughly a year, during a time when the bank was growing quickly. 

The Fed’s report, which included the release of internal reports and Fed communications, is a rare look into how the central bank supervises individual banks as one of the nation’s bank regulators. Typically, such processes are rarely seen by the public, but the Fed chose to release these reports to show how the bank was managed up to its failure. 

Bartlett Collins Naylor, financial policy advocate at Congress Watch, a division of Public Citizen, was surprised at the degree to which the Fed blamed itself for the bank failure. 

“I don’t know that I expected the Fed to say ‘mea culpa’ — but I find that adds a lot of credibility” to Federal Reserve leadership, Naylor said. 

Silicon Valley Bank was the go-to bank for venture capital firms and technology startups for years, but failed spectacularly in March, setting off a crisis of confidence for the banking industry. Federal regulators seized Silicon Valley Bank on March 10 after customers withdrew tens of billions of dollars in deposits in a matter of hours. 

Two days later, they seized Signature Bank. Although regulators guaranteed all the banks’ deposits, customers at other midsize regional banks rushed to pull out their money — often with a few taps on a mobile device — and move it to the perceived safety of big money center banks such as JPMorgan Chase.

Although the withdrawals have abated at many banks, First Republic Bank in San Francisco appears to be in peril, even after receiving a $30 billion infusion of deposits from 11 major banks in March. The bank’s shares plunged 70% this week after it revealed the extent to which customers pulled their deposits in the days after Silicon Valley Bank failed.
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