Federal Reserve examines factors that contributed to failure of Silicon Valley Bank

WASHINGTON, 29th April, 2023 (WAM) — The US Federal Reserve Board on Friday announced the results from the review of the supervision and regulation of Silicon Valley Bank, led by Vice Chair for Supervision Michael S. Barr. The review finds four key takeaways on the causes of the bank’s failure:

Silicon Valley Bank’s board of directors and management failed to manage their risks; Federal Reserve supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity; When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough; and the Board’s tailoring approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act and a shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.
“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” said Vice Chair for Supervision Barr. “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.”

The report discusses in detail the management of the bank and the supervisory and regulatory issues surrounding the failure of the bank. It goes through the recent supervisory history of Silicon Valley Bank and includes more than two dozen documents containing the bank’s confidential supervisory information such as supervisory letters, examination results, and supervisory warnings.

“I welcome this thorough and self-critical report on Federal Reserve supervision from Vice Chair Barr,” Federal Reserve Chair Jerome H. Powell said. “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.”

The report and documents detail the bank’s rapid growth, as well as the challenges Federal Reserve supervisors faced in identifying the bank’s vulnerabilities and forcing the bank to fix them. At the time of its failure, the bank had 31 unaddressed safe and soundness supervisory warnings—triple the average number of peer banks.