Washington, D.C. — The Federal Reserve and the Government Accountability Office each released reports today concerning the failure of Silicon Valley Bank. These reports are likely the first of several reviews to dissect federal regulators’ actions in light of SVB’s failure.
BPI President and CEO Greg Baer released the following statement in response:
We commend both the Federal Reserve and the GAO for releasing reports on SVB’s failure with speed and urgency, and believe it is particularly helpful that the Federal Reserve has made public the underlying supervisory materials related to SVB, given its status as a failed institution. These will assist future investigations greatly as they assess the causes and ramifications of SVB’s failure, including numerous important topics beyond the scope of these initial reports.
Unfortunately, and in contrast to the accurate and objective review of the problems leading to the failure of SVB provided by the GAO’s report, the Federal Reserve’s report lays blame at changes to regulation and supervision made in recent years, when its own examination materials make plain the fundamental misjudgments made by its examination teams over that same period. For example, SVB consistently failed the internal liquidity stress tests it was required to perform, but Fed examiners did not require it to improve its liquidity situation, suggesting that the regulations were fit for purpose, but the examiner response was inadequate. Put simply, there is no provision of S. 2155 that requires examiners to misjudge interest rate risk; the examination materials make clear that nothing in S. 2155 prevented them from properly examining it.
Lastly, we are disappointed that the Fed’s report has proceeded to make policy recommendations without input from the public or Congress and without the benefit of a broader and deeper investigation. Particularly remarkable is a reflexive and largely unexplained demand for higher capital requirements, which no independent observer has identified as playing any material role in SVB’s failure. It is surprising that the Board, whose Reserve Bank clearly made serious mistakes in the supervision of SVB, Moonstone and Silvergate, would not seek external views in proposing a solution to its supervisory mistakes.
About Bank Policy Institute.
The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.