Fed’s Powell: SVB management ‘failed badly,’ need changes to bank oversight

(Reuters) -The management of Silicon Valley Bank “failed badly,” Federal Reserve Chair Jerome Powell said on Wednesday, but its collapse also underscores the need for better controls despite what had been escalating oversight by the Fed’s own examiners.

“These are not weaknesses that are running broadly through the banking system,” Powell told a press conference after the Fed’s latest policy meeting, adding that depositors’ money is safe.

Fed supervisors saw the bank’s exposure to liquidity and interest-rate risks and moved to intervene, he said, but the speed of the bank run outpaced anything seen in the past.

“It does kind of suggest there’s a need for …regulatory and supervisory changes, just because supervision and regulation need to keep up with what’s happening,” Powell said.

He refrained from offering any specifics, saying those will come out of a review underway by the Fed’s Vice Chair for Supervision Michael Barr, and due by May 1.

“My only interest is that we identify what went wrong here…make an assessment of what are the right policies to put in place so that doesn’t happen again, and then implement those policies,” Powell said.

Federal Reserve bank examiners had called out problems at Silicon Valley Bank as long ago as 2019.

Starting in the second half of 2021, the bank received six citations, Powell said.

That included both matters “requiring attention” and their escalated cousin, matters “requiring immediate attention.”

The citations focused on duration and liquidity risk, showing regulators were concerned about the bank’s ability to meet short-term obligations like depositor withdrawals. Typically bank executives must respond to MRAs and MRIAs with plans for remediation.

In early 2023 the Fed launched a “horizontal” review of SVB and a number of its peers to assess potentially correlated liquidity risks in light of the rise in interest rates.

But those steps failed to head off a downfall triggered by exactly the deficiencies that supervisors had demanded be fixed.

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