The Federal Reserve Board has announced that Vice Chair for Supervision Michael S. Barr will be leading a review of the supervision and regulation of Silicon Valley Bank, in light of its failure. The Fed said the review would be publicly released by May 1, 2023.
Many observers have wondered why federal bank regulators were not on top of SVB’s collapse as they would have had access to all of the bank’s books as interest rates moved higher.
SVB found itself underwater when long-duration assets sank in value as interest rates increased. Bonds have an inverse relationship to interest rates, and regulators, as well as bank management, should have to take action once the Fed announced aggressive rate increases.
Federal Reserve Vice Chair Barr commented on the announcement:
“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience.”
Fed Chair Jerome Powell added:
“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve.”
The Fed did not mention the other two bank failures, Silvergate Bank and First Republic but both of these banks suffered from a similar issue of assets that declined in value as rate increases continued.