The Federal Reserve has released a report on the March 10 collapse of Silicon Valley Bank, attributing the bank's dramatic failure to weak risk management, supervisory foot-dragging by the Fed, and mismanagement. Michael S. Barr, the Fed's vice chair for supervision appointed by President Joe Biden, stated in the report that a combination of factors led to the downfall of what was once the nation's 17th-largest bank.
Barr noted that Silicon Valley Bank (SVB) had been forced to sell long-dated Treasury notes at a loss incurred as rising interest rates ate into principal value. Senior Fed officials said changes to Dodd-Frank reforms contributed to spurring crisis but acknowledged SVB case also reflected failures in supervision.
Risky business strategies along with weak management were highlighted in this latest report from The Federal Reserve. The findings reveal serious oversights by executives which ultimately caused SVB's collapse six weeks ago.
According to government sources, including a Government Accountability Office (GAO) report found that regulators failed to address significant management issues at both major US banks leading up two of history’s biggest bank failures: Signature Bank and Silicon Valley Bank.
These collapses sent shockwaves throughout the economy and likely hastened an impending recession. The GAO report suggests both agencies – FDIC and Federal Reserve – bear some responsibility for these outcomes.
In response to this situation, Senator Tim Kaine (D-Va.) indicated there could be cause for banking reform legislation later this year. Meanwhile, Michael Barr called for changes aimed at improving "the speed, force and agility of supervision," including more continuity in how The Federal Reserve oversees banks across various sizes.
The regulatory body will soon seek comment on proposed rules designed to address inadequate capital planning and risk management within financial institutions; however legislative approval is not required for such regulations.