Fed Delays Blamed for Silicon Valley Bank Collapse

The collapse of Silicon Valley Bank (SVB) in March 2023 has been attributed to supervisory delays by the Federal Reserve, according to an independent review. The Starling Advisory Group found that Fed staff knew or should have known about key vulnerabilities at SVB as early as March 2022 but failed to take prompt action.

The review identified several factors contributing to SVB's failure, including unrealised accounting losses on its securities portfolio and a run-prone deposit base. The bank had invested heavily in longer-term securities whose market value fell as interest rates rose. Meanwhile, 94% of its deposits were uninsured and concentrated among venture capital-backed technology companies.

The review also highlighted a long-standing culture of risk aversion within the Fed's supervisory staff, which led to unclear decision-making authority and further complicated the response to SVB's vulnerabilities. In contrast to social media speculation, the review found no evidence that online discussions triggered or accelerated the bank run.

In response to these findings, the Federal Reserve has introduced measures to strengthen supervisory oversight, including monthly reporting of unresolved concerns directly to senior officials and greater flexibility for examiners to respond to material vulnerabilities.