Silicon Valley Bank sinks due to management’s failure to respond to risks and lack of supervisory oversight

Washington [US]May 16 (ANI): Silicon Valley Bank’s board and management have failed to manage risk, said Federal Reserve Vice Chairman for Oversight Michael S. Barr. He made four key points from the research report conducted immediately after. US banks went bankrupt in March.

The research report examined the circumstances that led to the bank failure, including the supervisory and regulatory role of the U.S. Federal Reserve (Fed).

“As the bank grew, the board and management failed to effectively oversee the risks inherent in the bank’s concentrated business model and heavy reliance on uninsured deposits. After repeatedly failing the liquidity test, the SVB changed its course of action in part, “a precondition that determined its liquidity needs,” Barr told the House Financial Services Committee.

SVB Bank’s size tripled from 2019 to 2021, with increased technology and venture capital activity leading to an increase in uninsured deposits, most of which was invested in holdings. maturity securities.

Barr also raised allegations that the bank mismanaged interest rate risk.

“Its senior leadership focused on short-term gains, removed interest rate hedges that would have helped protect banks in a rising interest rate environment, and ignored multiple violations of long-term interest rate risk limits.” The current policy rate is currently within the target range of 5.0-5.25, the highest level in several years, and it is particularly noteworthy that early in 2022 the policy rate was near zero. The US Federal Reserve (Fed) has raised interest rates at its 10th consecutive Monetary Policy Review Conference. . Interest rate hikes usually help cool demand in the economy and thus help manage inflation.

Returning to Barr, he said the second key point is that as the SVB grows in size and complexity, Federal Reserve supervisors are not fully aware of the extent of their vulnerabilities. said.

A third key point is that when supervisors identified vulnerabilities, they did not take sufficient steps to enable banks to remediate those issues quickly enough.

Finally, a fourth key point is that the Federal Reserve’s coordinated approach and supervisory policy stance in response to economic growth, deregulation, and consumer protection legislation has resulted in reduced standards, reduced complexity, The increase and the promotion of deregulation hindered effective supervision. A less aggressive supervisory approach.

“Four key points point to the failure of SVB’s board and senior management, and the failure of the Federal Reserve. It is important to address these failures,” Barr said.

Silicon Valley Bank, one of the world’s most prominent financial institutions for technology start-ups, was in trouble, but collapsed for the first time on March 10 after a run by depositors.

Its closure had contagious effects and subsequently led to the closure of other banks, including Signature Bank and First Republic Bank.

The failure of several regional banks in the United States, which originated with Silicon Valley Bank, has rippled through the global banking industry, raising concerns that it will spread throughout the economy. (Ani)