The Federal Reserve System (Fed), the U.S. central bank, concluded on the 28th (local time) that the bankruptcy of Silicon Valley Bank (SVB) last month was a combination of the Fed failure to supervise and SVB’s mismanagement.
According to AFP, the Fed said in a review report on SVB bankruptcy that the SVB collapse was caused by various factors, including the Fed’s failure to respond to the issue.
“Based on what we learned from the failure of SVB banks, we need to strengthen the Fed’s supervision and regulation,” Michael Barr, the Fed’s vice chairman of financial supervision, said in a statement released with the report.
He said SVB’s management failed to properly manage risks before the bank’s sharp collapse, and Fed regulators “did not take strong enough action” after identifying the problem.
According to the report, SVB’s assets more than doubled during the high-tech boom between 2019 and 2021, prompting the Fed to “not recognize the seriousness of the company’s governance, liquidity and rate risk management.”
The report also pointed critically to laws under the Trump administration that eased some banking regulations.
“For SVB, this has eased regulatory and regulatory requirements, including lower capital and liquidity requirements,” the report said.
Barr said the Fed will strengthen its banking supervision so that it can identify risks and vulnerabilities such as the SVB crisis more quickly in advance.
The Fed will also consider strengthening its regulatory framework for banks and tightening rules on interest rate risks, liquidity and capital requirements, and stress tests.
A senior Fed official told reporters ahead of the release of the report that the review will be conducted extensively and will look more broadly at the Fed’s liquidity and capital rules.
Patrick McHenry, chairman of the House Financial Services Committee, welcomed some of the reports but criticized the tightening of regulations.
Meanwhile, the Federal Deposit Insurance Corporation (FDIC) released its own report on Signature Bank (SBNY), which went bankrupt last month.
New York-based SBNY was closed by U.S. regulators on March 12, just two days after SVB collapsed.
The FDIC report attributed the blame for SBNY’s collapse to management’s wrong decision, while acknowledging its failure to oversee the bank.
