Since Silicon Valley Bank failed in March, regulators have been studying why, exactly, they didn’t better identify the risks of having the country’s 16th-largest bank keep more than 90 per cent of its deposits uninsured.
Now the Fed is out with an initial report on what went wrong:
The four key takeaways of the report are:
1. Silicon Valley Bank’s board of directors and management failed to manage their risks.
2. Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity.
3. When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough.
4. The Board’s tailoring approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) and a shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.
So what’s to be done? Officials say there should be fewer regulatory cliffs to scale between regulatory regimes, and also be more aware of the risks of industry or business concentration among banks that don’t fall into the global systemically important bucket.
. . . we should introduce more continuity . . . so that as a bank grows in size and changes its supervisory portfolio, the bank will be ready to comply with heightened regulatory and supervisory standards more quickly, rather than providing a long transition to comply with those heightened standards.
We also need to be attentive to the particular risks that firms with rapid growth, concentrated business models, or other special factors might pose regardless of asset size.
Read the full piece here, and do let us know what we’ve missed in the comments.