MNI BRIEF: Ex-Fed Quarles Says US Bank Woes Not Over

Higher-for-longer U.S. interest rates mean banking woes aren't over and regulators need to look at making changes to liquidity requirements now, former Fed vice chair for supervision Randal Quarles said Friday.

"This is actually not over," he said in remarks at a conference at the Hoover Institution. "Interest rates will stay higher than many are currently expecting them to stay for longer and the consequence of that will be that this pressure will remain on this category of institutions and a broader category of institutions than we are currently expecting."

Quarles also criticized the Fed's liquidity requirements for banks, the Fed's post-mortem report on the collapse of Silicon Valley Bank, and the regulators' push for strengthened supervision and capital regulation.

"Why didn't SVB have any collateral at the discount window on the night before its failure? Because they had no incentive to do so," he said. "The Fed affirmatively disincentivized them to set collateral aside at the window because they couldn't count the window toward their liquidity requirements."

"That is the main lesson of SVB, not a more restrictive capital regime, or a more self-insured liquidity regime, or a more unfocused and assertive supervisory regime, but a rethinking of the misguided undermining of the Fed's core liquidity mission that we have been engaging in for decades."