A Federal Reserve-commissioned independent review found that supervisors knew or should have known about Silicon Valley Bank’s vulnerabilities by March 2022. The review said they did not take prompt and decisive action to encourage or require SVB to reduce its interest-rate risk or concentration of vulnerabilities before the bank failed in March 2023. It identified unrealised securities losses exceeding capital and a 94% share of uninsured deposits among the warning signs. Vice Chair for Supervision Michelle Bowman presented the findings on 18 September.
The bank’s uninsured deposits were concentrated among venture-backed technology companies, according to the review. It also found insufficient readiness to borrow at the Federal Reserve’s discount window. The review was conducted by the Starling Advisory Group, which Bowman engaged after being confirmed as Vice Chair for Supervision.
REVIEW IDENTIFIES SUPERVISORY BARRIERS
The review attributed delayed escalation partly to a risk-averse culture and unclear decision rights inside the supervisory process. Bowman said staff believed it was personally safer to take no action unless they were certain the action was exactly right.
An analysis by Charles River Associates, conducted at Starling’s request, concluded that social media did not trigger the run and found no evidence that it accelerated it. It found that 96% of social-media chatter about the run appeared after SVB’s failure was inevitable. Bowman said she had called for an independent review in June 2023 to supplement the Fed’s internal review of the failure.
FED SETS OUT REMEDIAL STEPS
Bowman said the Fed had issued a Statement of Supervisory Operating Principles and that examination teams will submit monthly reports to the heads of supervision flagging issues on which examiners were uncertain whether to act. Bowman said the reports would let examiners escalate concerns without fear and give leadership real-time visibility into where teams need clearer guidance.
Bowman said the Starling report is the first in a series.