Federal Reserve Vice Chair Criticizes Silicon Valley Bank’s Mismanagement Leading to Collapse

The collapse of Silicon Valley Bank (SVB) earlier this month was due to the bank's management failing to address interest rate and liquidity risks, according to Michael Barr, the Federal Reserve's vice chair for supervision.[0] Barr was testifying before the Senate banking committee alongside Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, and Nellie Liang, the Treasury's under secretary for domestic finance.[1] Barr criticised SVB for lacking a chief risk officer and failing to prepare for rising interest rates, which caused a decline in asset values.[2] The bank's failure was a “textbook case of mismanagement”, he said.[2]

Regulators had warned the bank in October and November last year of its exposure to interest rate risk and flagged it as a “matter requiring immediate attention”.[3] Barr said the Fed's board was briefed about interest rate risks several weeks before the bank failed.[4] All three officials who testified agreed that banking regulations should be strengthened in light of the bank failures.[5] Liang reported that the failed banks' deposits were all guaranteed by the FDIC, and a new lending facility was established by the Treasury to provide cash to banks experiencing sudden withdrawals.[6] She said the moves helped “stabilize deposits throughout the country and provided depositors with confidence that their funds are safe”.[6]

Barr is leading the Federal Reserve's review of what went wrong in the collapse of SVB and Signature Bank.[7] His report is due out by 1 May.[3] Barr said he is considering strengthening banking regulations.[8] “We need competent financial supervisors, but Congress can't legislate competence,” said House Financial Services Chairman Rep. Patrick McHenry.[1]

0. “Senate committee questions federal regulators over US bank crisis” Al Jazeera English, 28 Mar. 2023, https://www.aljazeera.com/news/2023/3/28/senate-committee-questions-federal-regulators-over-us-bank-crisis

1. “House lawmakers tear into top bank regulators in second hearing this week on SVB collapse” CNBC, 29 Mar. 2023, https://www.cnbc.com/2023/03/29/svb-hearing-house-lawmakers-tear-into-top-bank-regulators-in-second-hearing-this-week-on-collapse-.html

2. “This is why SVB imploded, says top Fed official” CNN, 27 Mar. 2023, https://www.cnn.com/2023/03/27/economy/michael-barr-testimony-svb-failure/index.html

3. “Fed’s Barr: SVB ignored ‘bread and butter’ banking issues” Roll Call , 28 Mar. 2023, https://www.rollcall.com/2023/03/28/feds-barr-svb-ignored-bread-and-butter-banking-issues/

4. “‘Justified anger': Key takeaways from Senate hearing on SVB's collapse” POLITICO, 28 Mar. 2023, https://www.politico.com/news/2023/03/28/senate-silicon-valley-bank-hearing-00089166

5. “Bank regulators blame SVB collapse on ‘textbook' mismanagement during Senate grilling” ABC News, 28 Mar. 2023, https://abcnews.go.com/Politics/bank-regulators-blame-svb-collapse-textbook-mismanagement-senate/story?id=98179684

6. “Silicon Valley Bank Failed Due To Mismanagement: Regulators; First Republic No Longer For Sale | Investor's …” Investor's Business Daily, 28 Mar. 2023, https://www.investors.com/news/silicon-valley-bank-failure-textbook-case-of-mismanagement-u-s-regulators-testify/

7. “Fed Vice Chair Calls Silicon Valley Bank a ‘Textbook Case of Mismanagement'” The New York Times, 28 Mar. 2023, https://www.nytimes.com/2023/03/27/business/economy/fed-silicon-valley-bank-mismanagement.html

8. “Two former Fed officials warn regulators’ supervision of banks is like a ‘SciFi’ movie: ‘It is mostly special effects’” Fortune, 29 Mar. 2023, https://fortune.com/2023/03/29/former-fed-officials-warn-supervision-regulators-scifi-special-effects-svb-collapse

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