Federal Reserve Board reviews SVB collapse
02 May 2023 US
Image: tanarch
The Federal Reserve Board has released the findings of its review into the collapse of Silicon Valley Bank (SVB).
Led by vice chair for supervision Michael Barr, the supervision and regulation review documents the challenges Federal Reserve supervisors faced in identifying the bank's vulnerabilities before it collapsed in March 2023.
Barr found that SVB's board of directors and management failed to manage their risks, and that Federal Reserve supervisors did not fully appreciate the extent of the vulnerabilities as SVB grew in size and complexity.
When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that SVB fixed those problems quickly enough, Barr says.
A shift in the stance of FSB’s supervisory policy impeded effective supervision by reducing standards, increasing complexity and promoting a less assertive supervisory approach, he adds.
At the time of its failure, SVB had 31 unaddressed safe and soundness supervisory warnings — triple the average number of peer banks.
Commenting on the findings, Barr says: "Following Silicon Valley Bank's failure, we must strengthen the Federal Reserve's supervision and regulation based on what we have learned. 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."
Jerome Powell, Federal Reserve chair, comments: "I welcome this thorough and self-critical report on Federal Reserve supervision from vice chair Barr. 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."
SVB’s rival First Citizens BancShares bought its assets and loans at the beginning of April. Despite SVB’s ‘eleventh-hour saving’, calls for accurate and timely reporting still abound. You can read more about the SVB collapse here.
Led by vice chair for supervision Michael Barr, the supervision and regulation review documents the challenges Federal Reserve supervisors faced in identifying the bank's vulnerabilities before it collapsed in March 2023.
Barr found that SVB's board of directors and management failed to manage their risks, and that Federal Reserve supervisors did not fully appreciate the extent of the vulnerabilities as SVB grew in size and complexity.
When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that SVB fixed those problems quickly enough, Barr says.
A shift in the stance of FSB’s supervisory policy impeded effective supervision by reducing standards, increasing complexity and promoting a less assertive supervisory approach, he adds.
At the time of its failure, SVB had 31 unaddressed safe and soundness supervisory warnings — triple the average number of peer banks.
Commenting on the findings, Barr says: "Following Silicon Valley Bank's failure, we must strengthen the Federal Reserve's supervision and regulation based on what we have learned. 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."
Jerome Powell, Federal Reserve chair, comments: "I welcome this thorough and self-critical report on Federal Reserve supervision from vice chair Barr. 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."
SVB’s rival First Citizens BancShares bought its assets and loans at the beginning of April. Despite SVB’s ‘eleventh-hour saving’, calls for accurate and timely reporting still abound. You can read more about the SVB collapse here.
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