Fed Staff Knew of SVB Vulnerabilities in 2022 but Failed to Act

The independent review of Silicon Valley Bank's (SVB) failure has revealed that Federal Reserve supervisory staff knew about key vulnerabilities at the bank as early as March 2022 but failed to take prompt action.

The review, conducted by Starling Advisory Group and released by Federal Reserve Vice Chair for Supervision Michelle Bowman, found that SVB's collapse in March 2023 was caused by a combination of unrealised accounting losses on its securities portfolio and an inadequately prepared deposit base.

The report also highlighted a long-standing culture of risk aversion among supervisory staff, which contributed to delays in addressing the bank's vulnerabilities. Staff were hesitant to act unless they were certain that their actions were correct, while unclear decision-making authority further complicated the process.