The Federal Reserve’s bank supervisors informed Silicon Valley Bank’s management as early as the fall of 2021 of risks stemming from the bank’s unusual business model, according to a top Fed official speaking on Tuesday. However, the bank’s management failed to take the necessary steps to resolve its issues.
At a Senate Banking Committee hearing, the Fed official, Michael Barr, the nation’s top banking regulator, stated that the Fed is considering whether stricter bank regulations are necessary to prevent a similar bank failure in the future.
Barr stated, “Supervisors have given the bank a very poor grade.” “It was graded inadequate at the holding company level, indicating that it is not well-managed.”
Barr’s timetable for when the Fed informed the management of Silicon Valley Bank to the threats it faced is earlier than when the central bank previously stated the bank was on its radar.
The hearing on Tuesday is the first formal congressional investigation into the March 10 collapse of Silicon Valley Bank and the following failure of New York-based Signature Bank, the second- and third-largest bank failures in U.S. history, respectively.
The failures triggered financial aftershocks in the United States and Europe, prompting the Federal Reserve and other government agencies to guarantee all deposits at the two banks, despite the fact that over 90 percent of deposits at both institutions surpassed the $250,000 insurance threshold. Also, the Fed developed a new lending program to make it easier for banks to raise funds when necessary.