Independent SVB Review Finds Fed Supervisors Knew Of Risks, Failed To Act; Social Media Didn’t Cause Run
By CU Today Staff —
LONDON—Federal Reserve bank supervisors knew or should have known about critical vulnerabilities at Silicon Valley Bank as early as March 2022 but failed to act promptly to force the bank to reduce those risks, according to initial findings of an independent review announced Friday by Fed Vice Chair for Supervision Michelle Bowman.
Speaking at the Luncheon of the Lord Mayor of the City of London at Mansion House, Bowman said the Starling Advisory Group review found SVB entered its March 2023 collapse with a combination of vulnerabilities, including unrealized securities losses exceeding its capital, a deposit base that was 94% uninsured and heavily concentrated among venture capital-backed technology companies, and inadequate preparations to borrow from the Federal Reserve’s discount window. Bowman commissioned the review after becoming vice chair for supervision, following her 2023 call for an examination independent of the Fed’s internal review.
The preliminary findings also concluded that supervisory delays were not caused by the regulatory tailoring requirements of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act or by instructions from the former vice chair for supervision to reduce supervisory intensity. Instead, Bowman said the review identified a longstanding culture of risk aversion among supervisory staff and unclear lines of authority and accountability that contributed to inaction. The findings represent a notably different emphasis from some earlier accounts of the supervisory breakdown, focusing heavily on internal Fed culture and decision-making.
The review also challenges a widely cited explanation for the speed of SVB’s collapse: social media. Bowman said an analysis performed by Charles River Associates for Starling found no evidence social media triggered or accelerated the run, with 96% of social-media discussion about the run occurring after the bank’s failure had become inevitable. SVB’s collapse subsequently contributed to broader banking system stress involving Signature Bank and First Republic Bank and prompted extraordinary government actions to contain the fallout. The Fed’s contemporaneous records show regulators responded to the 2023 turmoil with emergency measures as financial conditions tightened sharply.
Bowman said the Fed has already begun responding to some of the problems identified, including supervisory operating principles designed to focus examiners on material threats to banks and financial stability and encourage earlier corrective action. Examination teams will also submit monthly reports directly to senior supervision officials identifying cases in which examiners are uncertain whether supervisory action is warranted or consistent with leadership expectations. Bowman said the Starling report is the first in a series of findings from the independent review.
Originally reported by CU Today.