Investigation Launched into Oversight Failures Leading to Silicon Valley Bank Demise

Investigation Launched into Oversight Failures Leading to Silicon Valley Bank Demise

Federal Reserve regulators were aware of problems at Silicon Valley Bank for over a year before the bank failed earlier this month, highlighting failures in bank supervision.

A 2021 review found serious weaknesses in the bank’s risk management, but six warnings given to the bank’s leaders were not acted upon. Silicon Valley Bank was placed under restrictions last year that prevented it from growing through acquisitions.

By early 2023, the bank was in a “horizontal review,” an assessment to gauge the strength of risk management, but by March 2023, it failed. The Federal Deposit Insurance Corp. is investigating the bank’s oversight.

Questions have been raised over why regulators failed to take early action to prevent the bank’s downfall, with 97% of its deposits uninsured by the US government, which made customers more likely to run at the first sign of trouble.

Its collapse is likely to result in a broader push for stricter bank oversight. Bank officials are now considering tightening rules for banks with $100 billion to $250 billion in assets.

The downfall of the bank has also led to questions over whether Jerome Powell, the Federal Reserve chair, allowed too much deregulation during the Trump administration.

The Federal Reserve’s investigation into the collapse will focus on why the problems identified by the Fed did not stop after the central bank issued its first set of warnings, and whether supervisors believed they had authority to escalate the issue.

The Fed’s report is expected to disclose information about Silicon Valley Bank that is usually kept private as part of the confidential bank oversight process.

The bank’s CEO, Greg Becker, sat on the Federal Reserve Bank of San Francisco’s board of directors until March 10, and politicians have raised concerns about the potential conflict of interest this poses.

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