Federal Reserve Deputy, Michelle W. Bowman, announced the results of an independent review on Friday during a working lunch at Mansion House in London, revealing that supervisory staff were aware of the vulnerabilities of Silicon Valley Bank (SVB) but failed to take appropriate action due to a risk-taking culture.
Summary of Review Findings
The review conducted by the Starling Consulting Group highlighted serious deficiencies in the Federal Reserve's supervisory process related to the collapse of Silicon Valley Bank. Bowman stated that this report marks a turning point in understanding the failures present in the Federal Reserve's supervisory mechanisms.
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Silicon Valley Bank collapsed in March 2023 due to unrealized accounting losses, 94% of its uninsured deposit base, and operational unpreparedness. The review indicates that supervisory staff were aware of these vulnerabilities as early as March 2022 but delayed immediate action.
Risk-Taking Culture and Lack of Supervisory Action
Bowman emphasized that a long-standing risk-taking culture has led to the inaction of supervisory staff. Team members felt that inaction was safer than the risk of making a mistake in supervisory decision-making. This clearly indicates deficiencies in the Federal Reserve's supervisory system.
Additionally, the report dismissed claims that social media platforms contributed to the deposit flight. Analysts found that 96% of social media conversations occurred only after the bank's collapse became inevitable.
The Federal Reserve has also issued new principles for its operations to prioritize significant threats and curb the risk-taking culture. The bank has also requested inspection teams to provide monthly reports directly to supervisors to raise concerns without fear of repercussions.
