Fed Orders Review of 2023 SVB Collapse

The Federal Reserve will have a third-party review the March 2023 collapse of Silicon Valley Bank, Federal Reserve Vice Chair for Supervision Michelle W. Bowman said Friday (March 20).

During an interview on Fox Business’ “Mornings with Maria,” Bowman said there was evidence of issues with Silicon Valley Bank’s condition as early as 2022, and that those issues were included in the regularly published regulatory reports by the Federal Reserve.

“So, I think what happened there was really a failure of supervision and a failure of bank management,” Bowman said. “So, actually, we’ve just hired an external review to be conducted on all of the events that led to the failure of Silicon Valley Bank to ensure that we don’t repeat the same mistakes going forward.”

Silicon Valley Bank was taken over and closed by a California financial regulator in March 2023. The regulator, the California Department of Financial Protection and Innovation (DFPI), cited Silicon Valley Bank’s “inadequate liquidity and solvency” and appointed the Federal Deposit Insurance Corporation (FDIC) as the bank’s receiver, PYMNTS reported at the time.

In the days before the takeover, Silicon Valley Bank had been dealing with customer withdrawals and plummeting stock prices after it incurred a $1.8 billion after-tax loss on the sale of its investments, and some investors grew concerned about its liquidity.

The Federal Reserve published a self-critical post-mortem review of its oversight and regulation of Silicon Valley Bank in April 2023. The review was conducted by Michael S. Barr, who was the Fed’s vice chair for supervision at the time and remains a member of the Board of Governors of the Federal Reserve.

The review documented how lax supervision and loosened regulation, combined with poor executive management, led to the bank’s collapse, PYMNTS reported in April 2023.

Silicon Valley Bank “failed because of a textbook case of mismanagement by the bank,” the review said. “Its senior leadership failed to manage basic interest rate and liquidity risk. Its board of directors failed to oversee senior leadership and hold them accountable. And Federal Reserve supervisors failed to take forceful enough action.”