The dramatic failure of Silicon Valley Bank in early March was caused by mismanagement and supervisory mistakes, combined with a social media frenzy, according to a Federal Reserve report released Friday. According to Michael Barr, the Fed’s vice chairman for supervision appointed by President Joe Biden, several factors contributed to the collapse of SVB on March 10. Among them were bank executives who failed to manage interest rate risk, Fed regulators who failed to understand the depth of SVB’s problems and act swiftly, and a social media frenzy that accelerated the institution’s fall.
Barr called for broad changes in how regulators approach the nation’s complex and interwoven financial system. “Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” he said. “As risks in the financial system continue to evolve, we need to continuously evaluate our supervisory and regulatory framework and be humble about our ability to assess and identify new and emerging risks,” Barr added. SVB might have survived with more capital and liquidity, according to a senior Fed official. The central bank likely will focus on cultural changes, noting that risks at SVB were not thoroughly assessed. Banks could be subject to standardized liquidity requirements in the future, and compensation for bank managers may be closely supervised.
