Fed Had Concerns About Silicon Valley Bank Two Years Before Collapse

The Federal Reserve issued a report on Friday following the collapse of the Silicon Valley Bank, which said that the agency had concerns about the bank two years before its demise.

"The Federal Reserve Board on Friday announced the results from the review of the supervision and regulation of Silicon Valley Bank, led by Vice Chair for Supervision Michael S. Barr. The review finds four key takeaways on the causes of the bank's failure," the Federal Reserve said in a press release announcing the report.

The report comes over a month after the Silicon Valley Bank in California collapsed and the Federal Deposit Insurance Corporation (FDIC) was appointed as a receiver. In a press release announcing the collapse, the FDIC said, "As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits...At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers."

The Federal Reserve report goes on to mention the four reasons for the collapse of the Silicon Valley Bank and one of the reasons was due to Federal Reserve supervisors not appreciating "the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity."

 Additionally, the report said that when Federal Reserve Supervisors did notice vulnerabilities within the bank they failed to ensure the issues were resolved by the bank and some vulnerabilities were noticed by the supervisors several years before the collapse, dating back to 2020.

"With regard to interest rate risk management, supervisors identified interest rate risk deficiencies in the 2020, 2021, and 2022 Capital, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk (CAMELS) exams but did not issue supervisory findings," the report said. "The supervisory team issued a supervisory finding in November 2022 and planned to downgrade the firm's rating related to interest rate risk, but the firm failed before that downgrade was finalized."

Other reasons for the collapse included that the bank's management and board of directors failed to manage risks and the Economic Growth, Regulatory Relief, and Consumer Protection Act resulted in the Federal Reserve having a less supervisory approach.

"Following Silicon Valley Bank's failure, we must strengthen the Federal Reserve's supervision and regulation based on what we have learned," Federal Reserve Vice Chair for Supervision Michael S. Barr said in a statement. "This review represents a first step in that process—a self-assessment that takes an unflinching look at the conditions that led to the bank's failure, including the role of Federal Reserve supervision and regulation."

Newsweek was directed to the announcement by the Federal Reserve after reaching out via email for comment