Silicon Valley Bank failed due to a combination of extremely poor bank management, weakened regulations and lax government supervision, the Federal Reserve said Friday, in a highly-anticipated review of how the central bank failed to properly supervise the bank before it collapsed early last month.
The report, authored by Federal Reserve staff and Michael Barr, the Fed’s vice chair for supervision, takes a critical look at what the Fed missed as Silicon Valley Bank grew quickly in size in the years leading up to its collapse. The report also points out underlying cultural issues at the Fed, where supervisors were unwilling to be hard on bank management when they saw growing problems.
Silicon Valley Bank was the go-to bank for venture capital firms and technology start-ups for years, but failed spectacularly in March, setting off a crisis of confidence for the banking industry. Federal regulators seized Silicon Valley Bank on March 10 after customers withdrew tens of billions of dollars in deposits in a matter of hours.
The report also looks at the role social media and technology played in the bank’s last days. While the bank’s management was poor and ultimately that was the reason the bank failed, the report also notes that social media caused a bank run that happened in just hours, compared to days for earlier bank runs like those seen in 2008.
The nation’s banks are regulated by a troika of regulators: the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. All have been criticized for potentially missing signs that Silicon Valley Bank and Signature Bank might be in trouble.
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