The Fed on Silicon Valley Bank Collapse: We May Have Dropped the Ball There
This might not come as a huge surprise but one of the key takeaways from the Fed’s report is that SVB was not a particularly well run bank. The report notes that the bank’s board of directors and its managers were not very good at negotiating—or communicating about—the risks in the bank’s business strategy. At the same time, the bank is said to have not had any real plan for if things went south—like they ended up doing last month.
Silicon Valley Bank was a highly vulnerable firm in ways that both its board of directors and senior management did not fully appreciate.
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 wellrated, even as conditions deteriorated and significant risk to the firm’s safety and soundness emerged.see red flags, it was slow to act on them:
Overall, the supervisory approach at Silicon Valley Bank was too deliberative and focused on the continued accumulation of supporting evidence in a consensus-driven environment.In other words, federal regulators felt they needed to have an open-and-shut case before taking action against SVB.One of the reasons that SVB got away with making so many dumb decisions is that the banking industry has slowly been deregulated over the past several years, largely at the behest of corporate lobbyists.
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