Fed blames bank execs, itself in SVB failure
The Federal Reserve attributed March’s Silicon Valley Bank (SVB) collapse to poor management, watered-down regulations, and lax oversight by its own staffers, according to the Associated Press. The Fed also said the industry needs stricter policing on multiple fronts to prevent future bank failures.
As SVB grew rapidly beginning in 2018, banking supervisors were slow to recognize problems that eventually contributed to the bank’s downfall, including an increasing amount of uninsured deposits and inadequate safeguards against a sudden change in interest rates.
Actions taken by Congress and the Fed in 2018 and 2019 lightened rules and regulations for banks with less than $250 billion in assets. Both SVB and Signature Bank, which also failed in March, had assets below that level.
The Fed also criticized SVB for tying executive compensation too closely to short-term profits and the company’s stock price. From 2018 to 2021, profit at SVB Financial, Silicon Valley Bank’s parent, doubled, and the stock nearly tripled.
A report from the Federal Deposit Insurance Corp. said the failure of Signature Bank was likely fallout from the collapse of SVB. The FDIC also found its own regulatory deficiencies, notably insufficient staffing to adequately supervise Signature Bank.
The Fed said it plans to reexamine how it regulates larger regional banks such as Silicon Valley Bank, which had more than $200 billion in assets when it failed, although less than the $250 billion threshold for greater regulation.
The Bank Policy Institute, a trade group that represents the largest banks, said the Fed report was wrong to single out deregulation as a contributing factor to Silicon Valley’s collapse. Instead, it said the Fed’s report points to the failure of bank supervisors to enforce existing rules.