US Fed admits to failings in Silicon Valley Bank oversight

In a highly awaited study on the fall of Silicon Valley Bank (SVB) last month, released on Friday, the US Federal Reserve suggested for tighter financial monitoring while also acknowledging its own shortcomings. The study examines what the Federal Reserve overlooked as Silicon Valley Bank expanded swiftly in the years preceding its bankruptcy. It was prepared by Federal Reserve employees and Michael Barr, the Fed's vice chair for supervision.

The research also highlights underlying institutional difficulties at the Fed, where managers were reluctant to take tough measures against bank management even as problems grew.

"Following Silicon Valley Bank's failure, we must strengthen the Federal Reserve's supervision and regulation based on what we have learned," Federal Reserve vice chair for supervision Michael Barr said in a statement accompanying the report.

“The Federal Reserve did not appreciate the seriousness of critical deficiencies in the firm's governance, liquidity, and interest rate risk management. These judgments meant that Silicon Valley Bank remained well-rated, even as conditions deteriorated and significant risk to the firm's safety and soundness emerged,” the report said.

After customers withdrew tens of billions of dollars in deposits, federal regulators seized Silicon Valley Bank on March 10; two days later, they seized Signature Bank of New York. Even after receiving a USD 30 billion influx of deposits from 11 big banks in March, the withdrawals appear to have stopped at many institutions, but the First Republic Bank in San Francisco still seems to be in jeopardy. After the bank disclosed the extent to which customers withdrew their deposits in the days following Silicon Valley Bank's failure, its shares fell 57% this week.

A group of regulators, including the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, oversee the nation's banks. Republicans had condemned federal regulators at both sessions for failing to act with the appropriate haste.