SVB collapse: Fed reportedly raised repeated risk management concerns with bank
Emily Jacobs
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The Federal Reserve expressed concerns about Silicon Valley Bank’s risk management practices at least four years before its collapse earlier this month, according to reports.
The Fed issued a warning to SVB in January 2019 about its system to control risk, the Wall Street Journal reported Sunday. The central bank went on to issue numerous additional warnings to SVB in 2020 and 2021, suggesting the bank’s problems were on the Fed’s radar for long before going under.
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A 2021 Fed review of SVB found “serious weaknesses in how it was handling key risks,” according to the New York Times, which reported Sunday that supervisors at the Federal Reserve Bank of San Francisco issued six citations to the growing institution. Those warnings, the outlet said, flagged that the bank was not properly ensuring that it had access to enough easily-accessible cash in the event of a crisis.
Banking regulators shut down SVB earlier this month, two days after the nation’s 16th-largest federally insured bank announced that it needed to raise more than $2.2 billion to remain solvent, which sent its stock price plunging over 60% in 48 hours. Last Sunday, they also announced the closure of Signature Bank while revealing plans to make customers of both financial institutions whole. The SVB failure is the second-largest in U.S. banking history while Signature Bank is the third.
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The collapses led to a week of uncertainty for several regional banks and some bigger lenders. First Republic Bank, a regional bank, and Credit Suisse, a Swiss lender, both accepted rescue packages from larger institutions to shore up their liquidity. Credit Suisse announced on Sunday that it had reached a deal to be acquired by rival bank UBS, a move the U.S. Treasury and Federal Reserve said would “support financial stability.”
The White House has called on Congress to strengthen regulations to prevent an industry-wide collapse of smaller banks, though Democrats are split on the issue while Republicans are united against it.