LyrArc Article Gist
During 2022 the San Francisco Federal Reserve Bank issued 6 warning citations to Silicon Valley Bank, saying that its bank practices did not allow for enough cash in the event of crisis. By July 2022 in a full supervisory review it was rated deficient for governance and controls. At a meeting with senior leaders of the bank the possible exposure to interest rate losses related to Fed increasing rates was also discussed says this report in NYT. The Fed regulators stated that the bank was using wrong models showing that SVB bank would do better as interest rates increased.

Questions are being asked about why things that were in plain sight were overlooked by the regulators- 97% of deposits were uninsured by the federal government. In the event of a crisis depositors might try to get their deposits out causing a run on the bank which is what actually happened with $42 billion attempted withdrawals in one day. Michael Barr is the vice chair for Fed supervision. A investigation report is expected by May 1. March 29 the House Financial Services Committee will hold ahearing in Congress. Peter Conti-Brown, an expert on financial regulation at the University of Pennsylvania calls it failure of banking supervision, and says it will become clear from the investigation whether the supervisors failed in their work. One of the problems is that the CEO of SVB bank, Gregory Becker, was on the Board of the San Francisco Fed. NYT says the optics of this is bad. Bernie Sanders, Senator from Vermont, calls it absurd that he was appointed to the Fed board of the institution that was regulating SVB bank.

Another problem is that Randall Quarles, vice chair of Fed supervision 2017-2021 carried out a 2018 regulatory roll back law of president Trump in an expansive way says NYT. This law exempted banks with less than $250 billion in assets from strict banking supervision that larger banks were expected to go through. Fed chairman Powell is criticized for not  flagging these steps as potentially dangerous for the banking system in the way this was done by vice chair Lael Brainard. Brainard is now head of Biden's National Economic Council. She never favored the Trump law and had grasped early the risks of such deregulation. Sanders will bring a new law to prevent bank CEO's from sitting on Fed boards, and Senator Elizabeth Warren has called for an independent review that does not include Powell.