The Federal Reserve says its own light-touch approach to bank regulation is partly to blame for the collapse of Silicon Valley Bank last month, and it promised more vigorous oversight in the future.
In a scathing 114-page report (PDF), the Fed says its own supervisors were slow to grasp the extent of the problems at Silicon Valley Bank, and when problems were identified, supervisors failed to move aggressively enough to ensure those problems were fixed.
The report says changes adopted in 2019 that exempted all but the biggest banks from strict scrutiny — along with a cultural shift toward less-assertive policing of banks — allowed problems at Silicon Valley Bank to fester until it was too late.
“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation, based on what we have learned,” said Michael Barr, the Fed’s vice chair for supervision, who led the review.
Barr took over as the Fed’s top bank regulator last July, replacing Randal Quarles, who oversaw the changes made in 2019. Barr’s more aggressive approach to bank regulation has drawn criticism from Senate Republicans. But it has the backing of Fed chairman Jerome Powell.
“I welcome this thorough and self-critical report on Federal Reserve supervision from Vice Chair Barr,” Powell said in a statement. “I agree with and support his recommendations to address our rules and supervisory practices, and I am confident they will lead to a stronger and more resilient banking system.”