The Federal Reserve Board released the results from its review of the supervision and regulation of Silicon Valley Bank, finding four key takeaways on the causes of the bank’s failure:
- Silicon Valley Bank’s board of directors and management failed to manage their risks;
- Federal Reserve supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity;
- When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough; and
- The Fed’s tailoring approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act and a shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.
“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” said vice chair for Supervision at the Fed, Michael Barr, in a statement. “This review represents a first step in that process—a self-assessment that takes an unflinching look at the conditions that led to the bank’s failure, including the role of Federal Reserve supervision and regulation.”
The Federal Deposit Insurance Corporation (FDIC) released an internal review evaluating the agency’s supervision of Signature Bank New York (SBNY) from 2017 until its failure in March 2023 and was led by . The internal review report identifies the causes of Signature Bank’s failure and assesses the FDIC’s supervision of the bank.
This detailed analysis identifies clearly that “the root cause of [Signature Bank’s] failure was poor management. [Signature Bank’s] board of directors and management pursued rapid, unrestrained growth without developing and maintaining adequate risk management practices and controls appropriate for the size, complexity and risk profile of the institution. [Signature Bank’s] management did not prioritize good corporate governance practices, did not always heed FDIC examiner concerns, and was not always responsive or timely in addressing FDIC supervisory recommendations (SRs). [Signature Bank] funded its rapid growth through an overreliance on uninsured deposits without implementing fundamental liquidity risk management practices and controls.”
“This report is both thorough and straightforward. It clearly identifies the root cause of SBNY’s failure as poor management. It also identifies areas where the FDIC’s supervisory efforts could have been more timely, forward looking, and forceful. The report includes thoughtful recommendations on matters for further study by the FDIC related to examination guidance, processes, and resources. The challenges identified in the report and the recommendations for further study will be an urgent focus of attention and action by the FDIC going forward,” said FDIC chair Martin Gruenberg, in a statement.