Fed Autopsy On SVB Faults Bank’s Management — And Its Own Oversight

In a hotly anticipated banking report released Friday morning, the Federal Reserve said it failed to take sufficient action to prevent the collapse of Silicon Valley Bank, while detailing serious management oversights by the lender’s executives.

The Fed, which is SVB’s primary regulator, took responsibility for its own lapses, saying that supervisors “did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity” and “did not take sufficient steps” to ensure that SVB address its problems quickly.

Silicon Valley Bank’s collapse on March 10 — followed two days later by that of Signature Bank — sent shock waves through the global banking system. Regional banks have been hit especially hard, and investors are still bracing for pain six weeks later as First Republic Bank teeters on the edge.

“Regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework,” the Fed report states.

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It recommended a sweeping re-evaluation of its regulatory and supervisory functions.

“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” said Michael Barr, the Fed’s vice chair for supervision. “This review represents a first step in that process.”

At the time of its failure, SVB had 31 unaddressed “safe and soundness supervisory warnings” — triple the average number of peer banks, the Fed said in a press release.

Barr, who oversaw the Fed’s self-assesment, said that the central bank would welcome external reviews of SVB’s failure, including from Congress.

The report offers four key takeaways:

The Federal Deposit Insurance Corporation is due to release a similar report on the demise of Signature Bank on Friday afternoon.

Source – CNN