Silicon Valley Bank: Federal Reserve admits it failed to act forcefully enough

theguardian.com:

The Federal Reserve failed to “take forceful enough action” ahead of the collapse of Silicon Valley Bank last month, the Fed said on Friday in a hard-hitting report that blamed extremely poor bank management, weakened regulations and lax government supervision for the failure.

Silicon Valley Bank’s collapse triggered an ongoing banking crisis for mid-sized US banks. On Friday, trading in another mid-sized bank – First Republic – was briefly halted after its share price fell 48%. The bank revealed on Monday that it had lost $100bn in deposits during last month’s banking crisis.

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 SVB 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.

“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.

The Fed also said it planned to re-examine how it regulates banks the size of Silicon Valley Bank, which had more than $200bn in assets when it failed. One criticism that has arisen from Silicon Valley Bank’s failure is that the Fed and other regulators took a lighter approach to supervision for mid-size banks following the passage of a 2018 banking law that eased some of the tougher restrictions on the industry after the 2008 financial crisis.

“While