Federal Reserve admits it failed to properly supervise Silicon Valley Bank

"Supervisors did not take strong enough action, they did not appreciate the scope of vulnerabilities as SVB grew," said Fed Vice Chairman for Supervision Michael S. Barr.

The Federal Reserve (Fed) admitted that it failed its job as financial supervisor before the collapse of Silicon Valley Bank by not properly evaluating all the bank's "vulnerabilities." Fed Vice Chairman for Supervision Michael S. Barr noted:

Federal Reserve supervisors did not take strong enough action, as detailed in the report. ... they did not fully appreciate the scope of vulnerabilities as Silicon Valley Bank grew in size and complexity.

In its assessment of what led to the bank's collapse, the Fed said SVB's management and board “failed to manage its risks”:

Silicon Valley Bank's board and management failed to manage its risks. ... It failed due to a textbook case of mismanagement by the bank. Its senior leadership failed to manage base rate and liquidity risk. Its board of directors did not supervise senior management or hold them accountable.

svb-review-20230428 by Verónica Silveri on Scribd

The Fed highlighted that "at the time of its failure, the bank had 31 unaddressed safety and soundness supervisory warnings, triple the average number of peer banks."

What does the Fed say about its role?

Fed Chairman Jerome Powell assured that he would welcome "this comprehensive and self-critical report on Vice Chairman Barr's oversight of the Federal Reserve."

I agree with and support your recommendations to address our supervisory rules and practices, and I am confident that they will lead to a stronger and more resilient banking system.

For his part, Barr called to "strengthen Federal Reserve supervision and regulation" and indicated that "this review represents a first step in that process, a self-assessment that takes an unflinching look at the conditions that led to the bank's failure, including the role of Federal Reserve oversight and regulation."