U.S. House to Investigate San Francisco Fed’s Role in the Collapse of Silicon Valley Bank
Posted on 04/27/2023
The House Committee on Oversight and Accountability disclosed its probe in a letter from the panel’s Republican chairman James Comer to San Francisco Fed President and CEO Mary Daly. The committee is launching an investigation into the role the Federal Reserve Bank of San Francisco and other state and federal regulators played in the March 2023 failure of Silicon Valley Bank. Health Care and Financial Services Chairwoman Lisa McClain also joined in the letter. The bank’s failure is the second-biggest in U.S. history.
“The Committee on Oversight and Accountability is investigating the role the Federal Reserve Bank of San Francisco (SF Fed) and other state and federal regulators played in the March 2023 failure of Silicon Valley Bank (SVB). SF Fed appears to have failed to adequately supervise SVB and respond to the bank’s mismanagement, ultimately leading to SVB’s seizure by federal regulators—the second largest bank failure in U.S. history—and threatening a panic in our banking system. We request documents and information related to the SF Fed’s oversight of SVB,” the lawmakers wrote.
The Oversight Committee is investigating the circumstances that led to the Silicon Valley Bank’s collapse to hold relevant actors accountable. The Committee is concerned about whether the SF Fed allowed any factors to impact its enforcement of regulations.
“The SF Fed reportedly filed at least six Matters Requiring Attention (MRA) or Matters Requiring Immediate Attention (MRIA) against SVB, citations meant to highlight issues of concern but which do not require action by the bank. These warnings, dating back to at least November 2021, are not public and reports outline that SVB was under full supervisory review by the SF Fed as early as July 2022. Public documents show that SVB’s assets and liabilities were not appropriately diversified to match the bank’s growth and regulators filing MRAs and MRIAs may have been responding to knowledge that, at the end of 2022, almost 96 percent of deposits held at SVB were uninsured, making the bank susceptible to a run. While the signs of significant and alarming risk were clear, no regulator used more severe tools, such as fines or consent orders, to require action from SVB,” the lawmakers continued.
The Federal Reserve failed to take decisive action before the state regulator seized the bank and turned it over to the Federal Deposit Insurance Corp. on March 10, 2023.
Michael Barr told lawmakers in testimony in March 2023 that SVB’s failure was “a textbook case of mismanagement.”
SVB failed to “effectively manage the interest rate risk of those securities or develop effective interest rate risk measurement tools, models, and metrics,” said Barr.
Mary Daly
In 1996, Daly joined the San Francisco Fed as a research economist. She rose through the ranks and her career blossomed when Janet Yellen was named President of the San Francisco Fed in 2004. Yellen eventually became Federal Reserve Chairwoman in 2014.
At the end of the week, the Federal Reserve is set to release the findings of its investigation into what caused Silicon Valley Bank to collapse.
