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Fed Official Points to Multiple Factors in Silicon Valley Bank Collapse

A Fed official identifies multiple factors, including regulatory failures and management issues, behind the collapse of Silicon Valley Bank, which led to a loss of investor confidence and economic repercussions.


Assigning Blame for Bank Failure

According to Michael Barr, Fed Vice Chair for Supervision, bank executives, Federal Reserve supervisors, and other regulators are all to blame for the collapse of Silicon Valley Bank. He stated there were failures in bank management, supervision, and the regulatory system.

Effects on the Banking Sector

Silicon Valley Bank's and Signature Bank's failures triggered a loss of investor confidence that affected stock prices and raised fears of a full-blown financial crisis. A deposit flight across regional banks was initiated when depositors tried to withdraw over $42 billion daily.

Questions on Fed's Actions

Lawmakers from both parties questioned why the Federal Reserve did not take more forceful action, given that its supervisors had been raising issues with the bank for months. Barr criticized SVB's lack of a chief risk officer and its interest rate risk modeling.

SVB logo
SVB logo

Timeline of the Collapse

Barr informed the House Financial Services Committee that he became aware of stress at Silicon Valley Bank on March 9. The bank reported stable deposits that morning, but its assets were later sold to First Citizens Bancshares after a sale of Swiss giant Credit Suisse to UBS.

Flaws in the Bank Regulatory System

The recent bank collapses have exposed flaws in the bank regulatory system and hurt the entire economy, according to Democrat Brad Sherman. The Fed was in talks with Silicon Valley Bank to move collateral to the discount window before its collapse.

Potential Impact of 2018 Deregulation Law

Some Democrats argue that a 2018 bank deregulation law may be partially responsible for the bank failures. The law relaxed oversight for firms with $100 billion to $250 billion in assets, including SVB and Signature. The White House is reportedly considering reinstating regulations for midsize banks.