The U.S. Federal Reserve blamed the failure of Silicon Valley Bank last month on weaker Trump-era regulation and the failure of internal regulators to correct management missteps too late. It pointed out.
A long-awaited report released Friday had tough words for California bank management, but held the biggest lenders directly accountable for changes resulting from the 2018 bipartisan law. We have relaxed all restrictions and monitoring except for
SVB According to the Fed, without efforts in 2019 under former Fed Vice Chairman of Oversight Randal Quarles to reduce or “tune” the rules, they would have been subject to tougher standards and greater scrutiny.
That ultimately undermined the ability of supervisors to do their jobs, the Fed said.
“The SVB’s regulatory standards are too low, SVB’s oversight does not operate with sufficient force and urgency, and contagion from corporate failures is a systematic exercise not envisaged in the Federal Reserve’s coordination framework. It delivered results,” Fed Vice Chairman Michael Barr said in a letter Friday, the overseer who led the postmortem.
More specifically, “changes in supervisory policy stances have hindered effective supervision by lowering standards, increasing complexity, and promoting less assertive supervisory approaches.” A change, he said.
According to documents released alongside the report, the SVB supervisor said that in 2017, the bank’s rapid growth and high employee turnover led to compliance and risk experts challenging senior management. , found that it “taxes the ability to effectively identify and monitor critical keys.” risk”.
In 2021, supervisors have issued six warnings requiring banks to correct deficiencies in their management practices and exposure to adverse shocks. However, the SVB has not adequately addressed the issue and supervisors have assessed his SVB as poorly managed.
Around that time, SVB’s rapid growth moved it from one supervision category to another. federal reserve system He said the process was “complicated.” Risks would have been identified sooner had the bank undergone a more “thorough assessment” before entering the Fed’s portfolio of so-called large foreign banking entities, the report said.
By the fall of last year, supervisors had determined that banks’ “interest rate risk simulations were unreliable and needed improvement.” However, they failed to classify the issue as urgent and left it up to management until June 2023.
“The Federal Reserve failed to recognize the seriousness of the company’s material shortcomings in governance, liquidity and interest rate risk management,” the review said.
Part of the problem, the Fed found, was a “change in culture and expectations” under Quarls.Quoting interviews with staff, supervisors said “pressure to cut [the] It reduces the burden on companies, imposes a higher burden of proof on supervisory conclusions, and demonstrates due process when considering supervisory action. “
Quarles on Friday refuted the Fed’s assessment, saying he found no evidence that changing expectations of supervision had actually hampered the handling of the SVB.
He also said the Fed had disallowed “very specific and detailed supervisory instructions” that provided a framework for how to address the very risks that had plagued the SVB since 2010.
The Fed’s report identified the Reserve Bank of San Francisco as the body ultimately responsible for evaluating the SVB, but the Fed’s board of directors in Washington both “establish regulations…and We design programs that are used to supervise companies.” We found no evidence of “unethical behavior on the part of supervisors.”
The Fed’s review also highlighted the role of technological change in the rapid collapse of the SVB. “The combination of social media, highly networked and concentrated depositor bases and technology may have fundamentally changed the speed of bank crackdowns,” Barr said.
This review is the first official report on the failure of SVB. Lawmakers have accused regulators of not having the tools at their disposal and failing to quickly address problems when they are identified, with one leading Republican lawmaker saying the agency ” I’m holding the steering wheel,” he accuses.
In a separate independent report released on Friday, the U.S. Government Accountability Office concluded that the Fed’s supervisory actions were “inadequate given the banks’ known liquidity and management deficiencies.” , singled out the San Francisco chapter for not recommending the issuance of a “single enforcement action” despite having “serious” problems.
A separate report from the Federal Deposit Insurance Corporation on Friday explored the causes of the failure of Signature Bank, which collapsed in early March, days after the SVB. The review places most of the blame on Signature executives, but says the FDIC should have done more quickly and thoroughly to address the bank’s problems.
The Biden administration has sought to overturn Trump-era rules and tighten liquidity and capital requirements for banks with between $100 billion and $250 billion in assets, prompting political views on whether regulatory change is necessary. there is a difference. Most Republicans say no new laws are needed.
Barr on Friday expressed support for greater supervision and regulation of banks with more than $100 billion in assets and changes that do not require congressional approval.
He advocated reverting some of the 2019 changes, particularly those that allow mid-sized banks to exclude unrealized losses in their securities portfolios from their capital account. Barr also wanted a new regulatory regime to track banks like SVB that are growing rapidly or focusing on unique lines of business.
He also argued that the SVB’s salary plan is not sufficiently focused on risk and that regulators should consider setting “tighter minimum standards” for executive salaries.
Federal Reserve Chairman Jay Powell backed Mr. Barr’s proposal, saying he “believes it will lead to a stronger and more resilient banking system.”
But Senator Elizabeth Warren, a progressive Democratic senator from Massachusetts, said in a statement on Friday that Powell must be “held accountable” and that “banks that pose systemic risks to our economy” will be held accountable. He failed in his responsibility to oversee and regulate.”
