The Federal Reserve released a report Friday that aimed to explain why Silicon Valley Bank (SVB) failed last month, pointing the blame inward as well as outward.
Some of the reasons cited were alleged poor management, lack of government supervision, and reduced regulations, according to the results from the review of the supervision and regulation of SVB, which was led by Vice Chair for Supervision Michael S. Barr.
“Silicon Valley Bank (SVB) failed because of a textbook case of mismanagement by the bank. Its senior leadership failed to manage basic interest rate and liquidity risk. Its board of directors failed to oversee senior leadership and hold them accountable,” the report asserts.
The central bank took responsibility for what it saw as some of its failings as well, saying that Federal Reserve officials “failed to take forceful enough action.”
The report claims that the banking system in the United States is “sound and resilient” and that SVB’s failure was an “outlier” due to its “highly concentrated business model, interest rate risk, and high level of reliance on uninsured deposits.”
Another bank, Signature Bank, failed soon afterward, driving fears of instability in the banking sector and memories of the 2008 financial crisis. SVB apparently failed as a result of its overexposure to the tech sector, as previously reported by The Dallas Express.
However, the Fed admitted that “SVB’s failure demonstrates that there are weaknesses in regulation and supervision that must be addressed.”
“Regulatory standards for SVB were too low,” the report continues. “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 suggested that, following the failure of SVB, it needs to “strengthen” regulations and supervision.
Some see the Fed’s findings as important and productive.
“It’s a very productive first step in trying to understand both why Silicon Valley Bank failed and the significant supervisory shortcomings that contributed to that failure,” Kathryn Judge, a financial regulation expert at Columbia Law School, said of the review, per The New York Times.
“What we are seeing is an overall framework that was too slow, too weak and understaffed,” Judge concluded.
