An independent review of Silicon Valley Bank's (SVB) failure in March 2023, commissioned by Federal Reserve Vice Chair for Supervision Michelle Bowman, found that Fed supervisory staff knew about SVB's vulnerabilities as early as March 2022 but failed to take prompt and decisive action. The report, whose initial findings were announced by Bowman on September 18, 2026, highlighted several key issues contributing to SVB's collapse, including significant unrealized losses on its securities portfolio exceeding its capital, a highly uninsured and concentrated deposit base, and a lack of readiness to borrow from the discount window. The review concluded that these vulnerabilities were known or should have been known by Fed staff, yet supervisory action was delayed.
The report also identified a "culture of risk aversion" within the Federal Reserve's supervisory process as a significant factor in the inaction. Staff members reportedly felt it was safer to do nothing than risk making the wrong decision. This issue was compounded by a lack of clarity regarding decision-making authority, leading to uncertainty among staff about who could provide assurance that a particular action was correct. The review, conducted by Starling Advisory Group, refuted claims that regulatory tailoring mandates or social media played a significant role in causing or accelerating the bank run.
In response to these findings, the Federal Reserve has begun implementing changes. These include a refocusing of supervisory objectives to prioritize identifying and addressing significant threats, expanding supervisory options beyond formal enforcement actions, and directly addressing the culture of risk aversion. Going forward, examination teams will submit monthly reports directly to leadership to escalate concerns and provide real-time visibility into areas needing clearer guidance. Bowman emphasized that the report demands meaningful reform to the supervisory framework, which was tested by SVB's failure and the subsequent contagion that affected other banks like Signature Bank and First Republic Bank, requiring extraordinary government intervention to contain.
This independent review contradicts some earlier assessments, including an internal Federal Reserve report, by asserting that regulatory tailoring did not cause the delays in supervisory action. It has also drawn political attention, with some analysts suggesting it could be used by Trump allies to remove current Fed officials. Senator Elizabeth Warren criticized Bowman's handling of the review. The SVB failure ultimately cost the Deposit Insurance Fund an estimated $16.1 billion.
