Federal Reserve Review Finds Key Vulnerabilities at Silicon Valley Bank in March 2022
An independent review of Silicon Valley Bank's (SVB) failure has found 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 by Starling Advisory Group examined whether supervisors had identified SVB's weaknesses in advance and why action was delayed.
The review found that SVB's failure resulted from a combination of unrealized accounting losses on its securities portfolio that exceeded its capital, a run-prone deposit base, and inadequate operational readiness to borrow from the Federal Reserve's discount window. The review also identified a long-standing culture of risk aversion among staff as a significant factor behind supervisory inaction.
The Federal Reserve has introduced measures to strengthen supervisory oversight, including monthly reporting of unresolved supervisory concerns directly to senior officials and greater flexibility for examiners to respond to material vulnerabilities. According to the review, SVB's failure was not caused by the regulatory tailoring framework introduced in 2018 or by directives from the former Vice Chair for Supervision.