Fed staff should have known Silicon Valley Bank was vulnerable, new report finds

An outside review of the Federal Reserve's oversight of the failure of Silicon Valley Bank in 2023 has found the Fed's staff "knew, or should have known," that the bank was vulnerable prior to the crisis, Fed Vice Chair for Supervision Michelle Bowman said Friday.

Bowman's announcement of the report's findings immediately escalated political tensions around the Fed. The White House said the report implicated Fed Governor Michael Barr, who was appointed by President Joe Biden in 2022 and held Bowman's job as the Fed's top bank regulator during the banking crisis in 2023 that led to Silicon Valley Bank's failure.

The Fed's Board of Governors declined to comment on the report, beyond Bowman's comments. She announced the initial results of the review, by the consulting firm Starling Advisory Group, in a speech in London. Starling didn't immediately respond to questions about whether it would release the full report. Bowman described the consulting firm's work as an initial report, but didn't say when or whether the public might see the full results of the inquiry.

Silicon Valley Bank experienced a run in March 2023 after the bank announced it had sold securities at a $1.8 billion loss and needed to raise more capital. The bank's large holdings of U.S. Treasurys had lost value after the Fed began raising interest rates. The bank's customers included tech startups and venture capital firms. Many kept large sums on deposit at the bank, above the $250,000 threshold for deposit insurance. When the bank showed signs of strain, customers immediately sought to withdraw their funds, prompting a dramatic, fast-moving run on the bank.

The bank's deposits were "94 percent uninsured and concentrated in venture capital–backed technology companies," Bowman said the review found.

After the run, the heads of the Fed, the Federal Deposit Insurance Corporation and the Treasury Department issued a joint statement saying they would insure all deposits in the bank, even those above the FDIC's $250,000 limit. Barr was assigned to review of the episode in April 2023. The Fed's staff conducted an investigation that found its bank supervisors were overcautious in responding to the episode. The new review largely concurs, according to Bowman's description. The outside firm found Fed supervisors knew, or should have known, about the risks in advance, Bowman said. The report does not identify Barr by name and instead attributes the failures to sup...