(RoyalPatriot.com )- The New York Times reported that the Federal Reserve was “repeatedly warning” about the risky practices of Silicon Valley Bank since 2021, but the bank failed to correct the problems.
According to a source who spoke with the Times, in 2021, a Fed review found “serious weaknesses” in how Silicon Valley Bank was handling risks, prompting the Federal Reserve Bank of San Francisco to issue six citations against the bank.
The San Francisco Fed’s citations flagged that Silicon Valley Bank was failing to ensure that it would have enough cash on hand in the event of problems. However, the bank failed to fix the vulnerabilities cited by the Fed.
By the summer of 2022, Silicon Valley Bank was under a full supervisory review and rated “deficient” both for governance and controls, placing it under a series of restrictions that barred the bank from growing through acquisitions, the Times reported.
By the fall, officials from the San Francisco Fed met with senior bank officials to discuss whether the bank was capable of gaining access to enough cash on hand in the event of a crisis as well as the possible losses from rising interest rates.
According to the New York Times, it was clear to Fed officials that the bank relied on bad models to determine how it would handle a raise in interest rates by incorrectly assuming that revenue from increased interest rates would help the bank’s financial situation.
Early this year, the Fed placed Silicon Valley Bank in “horizontal review” which assesses the strength of the bank’s risk management. The review identified even more deficiencies.
But it was too late. By early March, the bank faced a run and collapsed.
The Federal Reserve has initiated an investigation into the failures of Silicon Valley Bank’s oversight, which is headed up by the Fed’s vice chair for supervision Michael S. Barr. The results of the inquiry are expected to be released by May 1.
