The Federal Reserve released a detailed report on the supervision and regulation of the former Silicon Valley Bank (SVB). The report, released along with a trove of confidential supervisory information pertaining to SVB, provides an in-depth look into the factors that contributed to the failure of SVB on March 10, 2023. The report points to failures by the board of directors and management of SVB to properly manage the risks associated with its business model, which was highly concentrated on early-stage start-up companies, relied heavily on uninsured deposits, and did not sufficiently account for interest rate and liquidity risk. Notably, the report also highlights the failure of banking supervisors to identify and address vulnerabilities that arose during SVB’s rapid growth, especially between 2019 and 2021, when the bank tripled in size.
The report places significant blame on changes to supervisory policy that took place between 2018 and 2019 with the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) and subsequent revisions to the Federal Reserve’s framework for supervision. The Federal Reserve believes this “tailoring” approach resulted in lower supervisory, capital, and liquidity requirements for SVB.
The report has four key findings:
The report also identified several broad themes:
The Federal Reserve’s report was released on the same day the FDIC and the New York State Department of Financial Services (NYDFS) published reports on the former Signature Bank, which failed on March 12, 2023. The FDIC’s report identified “poor management” as the “root cause” of Signature Bank’s failure. Signature Bank’s management was described as being “slow to respond to FDIC’s supervisory concerns” and “reactive, rather than proactive, in addressing bank risks and supervisory concerns.” The NYDFS’s report criticized Signature Bank for failing to remediate outstanding liquidity management issues.