Federal Reserve Review Reveals SVB Supervisors Knew of Risks by Early 2022
A comprehensive review of the Silicon Valley Bank's collapse reveals that supervisors at the Federal Reserve knew about severe interest rate, liquidity, and deposit concentration risks by early 2022 but failed to take decisive action.
The independent review, led by Michelle Bowman, Vice Chair for Supervision, identified three critical vulnerability areas in the lead-up to SVB's collapse: a securities portfolio carrying staggering unrealized accounting losses, approximately 94% of deposits lacking FDIC insurance coverage, and the bank having no backup funding channels available.
The review concluded that Fed supervisors knew or should have known about these issues by March 2022 at the latest but did not require SVB to reduce its interest rate risk and other concentration risks for a considerable period thereafter.
A defining flaw in the supervisory system was that staff tended to wait for evidence to be fully conclusive before acting, as 'not taking action' was viewed as the safer choice. Additionally, ambiguity in the division of authority further compounded this inertia.