Federal regulators “did not fully appreciate” how vulnerable Silicon Valley Bank (SVB) was prior to its collapse in March and failed to act quickly enough to address issues, a new report has found.
A review of the supervision of SVB, published on Friday and led by the Federal Reserve’s vice chair for supervision Michael Barr, found that recent changes to supervisory policies “impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach”.
When it collapsed, SVB had 31 “unaddressed safe and soundness supervisory warnings”, three times the average number of warnings for its peers, according to the Fed.
It was “a textbook case of mismanagement” by SVB’s leadership, Barr stated in his report, but there were also strong reasons to strengthen the Fed’s supervision approach and learn lessons from the case.
The Fed plans to revisit regulations for banks with $100 billion or more in assets including capital requirements, as well as its monitoring of interest rate and liquidity risks.
In addition, Barr said banking regulators need to ensure they keep pace with rapidly growing institutions to help identify and mitigate new risks.
SVB grew rapidly in size through its work with technology businesses, but its transition to higher standards did not match this pace — and nor did regulators’ monitoring or actions. SVB’s restructuring in late 2022 “likely warranted a stronger supervisory message”, the report stated.
The Fed’s report was damning of SVB’s management, accusing it of failing its own internal liquidity stress tests and changing risk management assumptions to reduce how certain risks were measured, rather than address the risks directly.