U.S. regulators are under increasing scrutiny over whether they missed clear signs of problems at Silicon Valley Bank (SVB), whose abrupt fall last Friday following a run on its deposits sowed fear and panic across the banking system.
With roughly $212 billion in total assets, the 16th largest bank in the U.S. and a major lender for U.S. tech startups, SVB was shut down by California's banking regulators on Friday, marking the second-biggest bank collapse in U.S. history.
As the government scrambles to contain the fallout in the wake of SVB's failure, attention has turned to regulators responsible for overseeing the bank. Questions have been raised over whether they missed anything in the run-up to SVB's rapid failure within just days of announcing that it had to raise capital to shore up its finances.
In an opinion piece in the New York Times on Monday, Sen. Elizabeth Warren pointed out that SVB's collapse and the closure of the cryptocurrency sector lender Signature Bank that quickly followed, were due to lack of regulatory oversight and measures that would have had "expose their vulnerabilities and shore up their businesses."
She said these bank failures were "entirely avoidable" if Congress and the Fed had done their jobs.
"Had Congress and the Federal Reserve not rolled back the stricter oversight, SVB and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks," she wrote in the op-ed.
Ian Katz, financial policy analyst at research firm Capital Alpha Partners, echoed this sentiment by calling SVB failure "a black eye for regulators."
Experts have argued that SVB's "red flags" were glaringly obvious and could have been spotted in advance.
Aaron Klein, former deputy assistant secretary for economic policy at the Treasury Department, said that the rapid growth of SVB's asset base, which nearly doubled to more than $210 billion between 2020 and the end of last year, as well as the fact that nearly 96 percent of SVB's deposits were not covered by the FDIC insurance policy, were "red flags" that the Fed and California State regulators should have noticed.
Pursuant to current policy, banks with over $100 billion in assets fall under the direct supervision of the Federal Reserve. The Federal Reserve Bank of San Francisco, one of 12 regional Fed banks, was responsible for supervising Silicon Valley Bank, with Fed staff and governors in Washington setting the direction for oversight. California's state regulator was also a key supervisor given SVB's state-chartered bank status.
The Fed announced on Monday the necessity for a review of its oversight on Silicon Valley Bank in the wake of its sudden collapse. Fed Chairman Jerome Powell said in a statement, that the bank's failure demanded a "thorough, transparent, and swift review." Fed Vice Chairman for Supervision Michael Barr is leading the review, and results will be publicly released by May 1.
(Cover via CFP)