WASHINGTON (AP) – The Federal Reserve (Fed) in the United States blamed last month’s collapse of Silicon Valley Bank (SVB) on poor management, watered-down regulations and lax oversight by its own staffers, and said the industry needs stricter policing on multiple fronts to prevent future bank failures.
The Fed was highly critical of its own role in the bank’s failure in a report compiled by the Fed’s Chief Regulator Michael Barr, and released yesterday.
As SVB grew rapidly beginning in 2018, banking supervisors were slow to recognise problems that eventually contributed to the bank’s downfall, including an increasing amount of uninsured deposits and inadequate safeguards against a sudden change in interest rates.
Once those problems were identified, supervisors appeared unwilling to press the bank’s management to address the issues, the report said.
The passive approach stemmed from actions taken by Congress and the Fed in 2018 and 2019 that lightened rules and regulations for banks with less than USD250 billion in assets, the report concluded.
Both SVB and New York-based Signature Bank, which also failed last month, had assets below that level. The changes increased the burden on regulators to justify the need for supervisory action, the report said.
“In some cases, the changes also led to slower action by supervisory staff and a reluctance to escalate issues.”
A separate report from the Federal Deposit Insurance Corporation (FDIC) said the failure of Signature Bank was likely fallout from the collapse of SVB.
The FDIC also found its own regulatory deficiencies, notably insufficient staffing to adequately supervise Signature Bank, which was based in New York.
The agency also took a light-handed approach to regulation, the report found.
