Silicon Valley Bank: The Fed Admits Oversight Errors

The US Federal Reserve has acknowledged the failure to supervise the bankrupt Silicon Valley Bank (SVB) and has spoken in favor of tougher banking regulation. The Fed underestimated the “seriousness of critical failures in managing governance, liquidity and interest rate risks” in the SVB, according to a report released Friday by the central bank on the collapse of the California regional bank in March.

The highly anticipated report said that when vulnerabilities became apparent, the Fed “did not take sufficient steps to ensure that Silicon Valley Bank addressed these issues quickly enough.”

The Fed (Federal Reserve) is harshly taking the SVB’s leadership to court: The board and management were unaware of the risky business model, which was focused on the technology sector. Those responsible for the SVB “failed to manage their risks”.

severe disorder

The collapse of the regional bank caused great turmoil in the banking sector and in the stock exchanges. SVB – the 16th largest US bank by assets and a major lender, mainly to Silicon Valley start-ups – was shut down by authorities on March 10 after a massive withdrawal of capital by its investors.

The biggest bank failure in the US since the 2008 financial crisis also plunged other US credit institutions into the crisis and had repercussions as far afield as Europe. In Switzerland, the main bank UBS, under pressure from the state, took over the second place in the country, Credit Suisse, which has been plagued by scandals in recent years.

The US Federal Reserve has now declared that stricter banking supervision is necessary to avoid future crises. “After Silicon Valley’s bankruptcy, we need to strengthen Fed oversight and regulation based on what we’ve learned,” said Fed Chairman Michael Barr, who wrote the SVB report.

The Fed should be able to identify risks and vulnerabilities in banks more quickly. Among other things, the Fed can tighten interest rate risk requirements, liquidity and capital requirements, and stress tests.

Federal Reserve Chairman Jerome Powell thanked Barr for the “careful determination and self-criticism.” Implementation of the proposals will lead to “a stronger and more resilient banking system”.