Fed faults Silicon Valley Bank execs, itself in bank failure

WASHINGTON (AP) — The Federal Reserve blamed last month’s collapse of Silicon Valley Bank on poor management, watered-down regulations and lax oversight by its own staffers, and said the industry needs stricter policing on multiple fronts to prevent future bank failures.

The Fed was highly critical of its own role in the bank’s failure in a report compiled by Michael Barr, the Fed’s chief regulator, and released Friday. As Silicon Valley Bank grew rapidly beginning in 2018, banking supervisors were slow to recognize problems that eventually contributed to the bank’s downfall, including an increasing amount of uninsured deposits and inadequate safeguards against a sudden change in interest rates. Once those problems were identified, supervisors appeared unwilling to press the bank’s management to address the issues, the report said.

The passive approach stemmed from actions taken by Congress and the Fed in 2018 and 2019 that lightened rules and regulations for banks with less than $250 billion in assets, the report concluded. Both Silicon Valley Bank and New York-based Signature Bank, which also failed last month, had assets below that level.

The changes increased the burden on regulators to justify the need for supervisory action, the report said. “In some cases, the changes also led to slower action by supervisory staff and a reluctance to escalate issues.”