The collapse of Silicon Valley Bank occurred because the bank’s leadership failed to effectively manage its interest rate and liquidity risk, according to the Federal Reserve vice chair for supervision Michael Barr.
In prepared remarks released ahead of Barr’s appearances before lawmakers this week, he said “SVB’s failure is a textbook case of mismanagement.”
Barr is set to appear before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
“The bank waited too long to address its problems, and ironically, the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank’s failure,” Barr said in his prepared remarks.
Barr noted that the Fed’s review of SVB’s collapse to be released to the public on May 1 would be “thorough and transparent.”
“I am committed to ensuring that the Federal Reserve fully accounts for any supervisory or regulatory failings and that we fully address what went wrong,” he said.
Federal Deposit Insurance Corporation (FDIC) chairman Martin Gruenberg, who is also appearing before the committees, said in prepared remarks that a common thread between the failure of SVB and Signature Bank was the banks’ heavy reliance on uninsured deposits.
"The significant proportion of uninsured deposit balances exacerbated deposit run vulnerabilities and made both banks susceptible to contagion effects from the quickly evolving financial developments,” he said.
He said the accumulation of losses in the banks’ securities portfolios was another common thread between the collapse of Silvergate Bank and SVB.
Further, he noted that the failures of SVB and Signature Bank also demonstrated the implications that banks with assets of $100 billion or more can have for financial stability.
“The prudential regulation of these institutions merits additional attention, particularly with respect to capital, liquidity, and interest rate risk,” Gruenberg said.
“Given the financial stability risks caused by the two failed banks, the methods for planning and carrying out a resolution of banks with assets of $100 billion or more also merit special attention, including consideration of a long-term debt requirement to facilitate orderly resolutions.”
Contact the author at emily.jarvie@proactiveinvestors.com
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