The Silicon Valley Bank logo is seen through a rain covered window in front of the SVB headquarters on March 10, 2023, in Santa Clara, California.
Justin Sullivan | Getty Images (TNS)
WASHINGTON — Federal regulators didn’t go far enough to push Silicon Valley Bank to fix the problems that led to its collapse last month, the Federal Reserve’s top bank regulator said in a report released Friday.
That was caused in part by policy changes during the Trump administration that rolled back oversight of mid-sized banks, wrote Vice Chair for Supervision Michael Barr in a scathing review of events that led to the bank’s failure.
Silicon Valley Bank’s “senior leadership failed to manage basic interest rate and liquidity risk. Its board of directors failed to oversee senior leadership and hold them accountable,” Barr wrote. “And Federal Reserve supervisors failed to take forceful enough action.”
Tailoring changes put in place in 2019 removed thousands of banks with fewer than $250 billion in assets from stricter federal oversight, including regular “stress tests” that show whether banks could survive a recession.
Those changes made regulators slower to identify risks and slower to take action once the risks were identified, Barr wrote.
He also said the Fed needs to develop “a culture that empowers supervisors to act in the face of uncertainty,” and “to guard against complacency.”
“More than a decade of banking system stability and strong performance by banks of all sizes may have led bankers to be overconfident and supervisors to be too accepting,” he wrote. “Supervisors should be encouraged to evaluate risks with rigor and consider a range of potential shocks and vulnerabilities, so that they think through the implications of tail events with severe consequences.”
He said the Fed plans to revisit the tailoring framework he said contributed to weak oversight, including potentially strengthening rules for banks with more than $100 billion in assets. Silicon Valley Bank had $209 billion in total assets when it failed.
Higher capital and liquidity requirements for banks with inadequate planning or controls can also help shore up banks, he argued. Those requirements would be phased in over the next several years after going through a rule-making process.
The Fed should also consider “setting tougher minimum standards for incentive compensation programs” to make sure bank managers respond to oversight warnings, he said.
He also noted that new technology fueled the bank run in unprecedented ways: Social media allowed panic to spread quickly while online banking allowed customers to immediately withdraw their funds.
The proposed changes can be made through regulatory processes within the Fed and will not require legislative approval, a top official told reporters in a briefing Friday morning. The official also said the staff that conducted the review was not involved in the direct supervision of Silicon Valley Bank, though the agency welcomes further outside review and recommendations.
