Federal Reserve Announces Results From the Review of the Supervision and Regulation of SVB
On April 28, the Federal Reserve released its report analyzing SVB's failure (Report). The Report discusses in detail the management of SVB and the supervisory and regulatory issues surrounding the failure, including a wide range of supervisory material that is typically treated as confidential.
The Report contains four key takeaways:
- Silicon Valley Bank's board of directors and management failed to manage their risks;
- Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity;
- When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough; and
- The Federal Reserve's tailoring approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act and a shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.
In addition to analyzing SVB, the Report details lessons learned that could enhance the supervisory and regulatory framework to prevent future failures.
"We need to develop a culture that empowers supervisors to act in the face of uncertainty. In the case of SVB, supervisors delayed action to gather more evidence even as weaknesses were clear and growing. This meant that supervisors did not force SVB to fix its problems, even as those problems worsened.
- Michael Barr, Vice Chair for Supervision, Board of Governors of the Federal Reserve System
Bank Failure Knowledge Center Updates:
- First Republic Bank FAQ
On May 1, First Republic Bank was placed in receivership, and the deposits and substantially all the assets of First Republic Bank were acquired by JPMorgan Chase Bank, N.A. (FAQ last updated 3 pm EST on May 1) - FDIC Pass-Through Coverage
Since the failure of SVB in March of this year, there has been a renewed focus on FDIC deposit insurance coverage, including arrangements that provide so-called "pass-through" deposit insurance coverage for bank deposits. Pass-through deposit insurance covers funds in deposit accounts at FDIC-insured depository institutions where the funds are owned by a principle but held by a nominal depositor in a fiduciary capacity (typically as an agent or custodian).
FDIC Releases Comprehensive Overview of Deposit Insurance System, Including...
