The Federal Reserve (Fed) has concluded that the management of the Silicon Valley bank “failed to manage the risks” that the entity ran, although it also acknowledged having failed as a supervisor, for not appreciating the breadth of the bank’s vulnerabilities.
These are two of the conclusions of the report on the fall of Silicon Valley Bank (SVB) that the Fed has made public this Friday (04.28.2023), in which it acknowledges that the supervisors did not take “sufficient steps” to ensure that this bank to quickly solve its problems when it detected them.
“Following the failure of Silicon Valley Bank, we need to strengthen supervision and regulation of the Federal Reserve based on what we have learned,” Federal Reserve Vice President of Supervision Michael Barr said in a statement accompanying the report.
Collapse shocked entire banking sector
Barr believes that SVB’s management failed to manage risk before the bank collapsed and that Fed supervisors failed to take strong action, despite identifying problems at the California tech-focused lender.
SVB went bankrupt on March 10, largely because of its high exposure to an interest rate hike. Its collapse shocked the entire banking industry, leading to the failure of another US regional bank and UBS’s hasty purchase of investment bank Credit Suisse.
The report concludes that the Fed “failed to appreciate the severity of critical deficiencies in the firm’s governance, liquidity, and interest rate risk management,” because SVB’s assets doubled between 2019 and 2021 amid a tech industry boom.