The Federal Reserve’s initial report on the failure of Silicon Valley Bank does not indicate that a full-blown banking crisis is underway.
Rather, the review, led by Vice Chairman for Supervision Michael Barr, resulted in a mea culpa on the part of the Fed while also placing blame on SVB’s board and management.
Specifically, the report faulted directors and executives for failing to manage the bank’s risks. At the time of the bank’s failure, it had 31 unaddressed safe and soundness supervisory warnings, or triple the average number for peer banks.
The report also pointed a finger at examiners who “did not fully appreciate the extent of the vulnerabilities as [SVB] grew in size and complexity.” It noted that, when supervisors found vulnerabilities, they failed to take sufficient steps to ensure that the bank quickly fixed the problems.
Finally, the report said the Economic Growth, Regulatory Relief, and Consumer Protection Act led the Fed to take a tailored approach that resulted in reduced standards and, increased complexity, while promoting “a less-assertive supervisory approach.”
“We must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” Barr said in a press release.
“This review represents a first step in that process — a self-assessment that takes an unflinching look at the conditions that led to the bank’s failure, including the role of Federal Reserve supervision and regulation,” he added.