Fed review says Silicon Valley Bank failed due to mismanagement, lack of supervision
A Federal Reserve review of the collapse of Silicon Valley Bank found it failed as a result of a "textbook case of mismanagement" by the bank's leadership.
A Federal Reserve review of the collapse of Silicon Valley Bank found it failed as a result of a "textbook case of mismanagement" by the bank's leadership.
File Photo by Terry Schmitt/UPI | License Photo
April 28 (UPI) -- The Federal Reserve Board said Friday its review of Silicon Valley Bank's collapse found the bank failed due to a "textbook case of mismanagement" by its leadership.
Fed Vice Chair for Supervision Michael S. Barr's review, released Friday, said the central bank found Silicon Valley Banks' board and management didn't manage their risks and that effective supervision was impeded by "reducing standards, increasing complexity and promoting a less assertive supervisory approach."
"Its senior leadership failed to manage basic interest rate and liquidity risks. Its board of directors failed to oversee senior leadership and hold them accountable. And Federal Reserve supervisors failed to take forceful enough action," Barr said.
The report also found that Federal Reserve supervisors didn't "fully appreciate the extent" of the bank's vulnerabilities and didn't move fast enough to fix the bank's problems.
April 28 (UPI) -- The Federal Reserve Board said Friday its review of Silicon Valley Bank's collapse found the bank failed due to a "textbook case of mismanagement" by its leadership.
Fed Vice Chair for Supervision Michael S. Barr's review, released Friday, said the central bank found Silicon Valley Banks' board and management didn't manage their risks and that effective supervision was impeded by "reducing standards, increasing complexity and promoting a less assertive supervisory approach."
"Its senior leadership failed to manage basic interest rate and liquidity risks. Its board of directors failed to oversee senior leadership and hold them accountable. And Federal Reserve supervisors failed to take forceful enough action," Barr said.
The report also found that Federal Reserve supervisors didn't "fully appreciate the extent" of the bank's vulnerabilities and didn't move fast enough to fix the bank's problems.
"Following Silicon Valley Bank's failure, we must strengthen the Federal Reserve's supervision and regulation based on what we have learned," Barr said in a statement. "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."
According to the Fed's review, while Silicon Valley Bank was growing rapidly from 2019 to 2021 it went from $71 billion to over $211 billion in assets and was not subject to heightened Fed supervisory or regulatory standards.
The review found widespread managerial weaknesses at the bank.
To strengthen oversight processes, the Fed's Review recommended a simpler and stronger oversight program and tailoring framework to make them both more efficient and more effective.
The review found that the Fed's oversight was "overly focused on oversight requirements rather than the underlying risks." It said this is an opportunity to "shift the culture of supervision toward a greater focus on inherent risk."
The report said there should be more willingness among Fed supervisors
to form judgments that challenge bakers with "a precautionary perspective."
Just days after Silicon Valley Bank's failure in March shocked the U.S. financial system, Federal Reserve Chairman Jerome Powell announced the review of the bank and its oversight.
The Fed's review found that the U.S. banking system as a whole is resilient, with strong capital and liquidity.
"I welcome this thorough and self-critical report on Federal Reserve supervision from Vice Chair Barr," Powell said in a statement Friday. "I agree with and support his recommendations to address our rules and supervisory practices, and I am confident they will lead to a stronger and more resilient banking system."
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