A new Federal Reserve inquiry into the 2023 collapse of Silicon Valley Bank (SVB) has found that bank-supervision staff during the Biden administration could have anticipated and prevented the bank’s failure. This report, commissioned by Michelle Bowman, a Trump ally and the Fed's top bank regulator, laid out initial findings from a London gathering. The inquiry, conducted by the Starling Advisory Group, points to supervisory inaction despite staff knowing or having reason to know about SVB's vulnerabilities as early as March 2022. These vulnerabilities included significant unrealized accounting losses on its securities portfolio exceeding its capital, a highly uninsured deposit base of 94% concentrated in venture capital, and a lack of readiness to borrow from the discount window.
This new report has ignited political debate, with some Trump allies suggesting it could provide grounds to remove Michael Barr, the Fed Governor and former vice chair for supervision when SVB collapsed. Barr oversaw a previous report on the failure, which a White House official expressed dissatisfaction with. Senator Elizabeth Warren, a Democrat, has sharply criticized Bowman, alleging the report is politically motivated, an "embarrassing attempt to rewrite history," and designed to shift blame away from Trump's deregulation efforts. Treasury Secretary Scott Bessent has, in turn, rebuked Warren, accusing her of trying to discredit the review to protect Barr.
The review emphasizes that it's not about assigning blame but about learning from past mistakes to avoid future repetitions. It highlights a "culture of risk aversion" within the supervisory staff, where individuals felt it was safer to take no action unless certain it was precisely correct. A lack of clarity regarding decision-making authority further compounded this culture. The report suggests that examiner teams will now submit monthly reports directly to supervision heads, identifying any issues where certainty is lacking, aiming to empower examiners to escalate concerns. SVB's failure in March 2023 was the largest in the U.S. since the 2007-09 financial crisis and triggered contagion that affected other banks like Signature Bank and First Republic Bank, requiring extensive government intervention.
