Federal Reserve Sheds Light On SVB's Collapse In New Report: 'Failed To Manage Risks'

The Federal Reserve Board on Friday issued a review of Silicon Valley Bank's failure, led by Vice Chair for Supervision Michael Barr.

The report found that Silicon Valley Bank's (SVB) senior leadership and board of directors failed to manage risks, and Federal Reserve supervisors did not fully appreciate the extent of the vulnerabilities as the bank grew in size and complexity.

When supervisors did identify vulnerabilities, they didn’t take sufficient steps to ensure that SVB fixed those problems quickly enough, the report said.

More than that, the Board's approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act — the law that changed the asset threshold for banks that are subject to enhanced supervision and regulation from $50 billion to $250 billion, providing regulatory relief — impeded effective supervision.

The report said SVB was highly vulnerable, with foundational and widespread managerial weaknesses, a highly concentrated business model, and a reliance on uninsured deposits.

Those vulnerabilities left the bank acutely exposed to the specific combination of rising interest rates and slowing activity in the tech sector that materialized in 2022 and early 2023.

The report highlighted that SVB managed interest rate risks with a focus on short-run profits and protection from potential rate decreases, rather than managing long-run risks and the risk of rising rates.

Read more on how SVB failed.

The report also indicated the supervisory approach at SVB was too deliberative and focused on the continued accumulation of supporting evidence in a consensus-driven environment.

Barr wrote, "following Silicon Valley Bank's failure, we must strengthen the Federal Reserve's supervision and regulation based on what we have learned. 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 supervision and regulation."

Federal Reserve Chair Jerome Powell supported Barr's recommendations to address the rules and supervisory practices, saying, "I am confident they will lead to a stronger and more resilient banking system."

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