Svb, the 6 (unheeded) warnings of the Fed before the bankruptcy – Corriere.it

That Silicon Valley Bank was a problem, the Fed had known for at least two years. The first alerts date back to 2021, when the Federal Reserve Bank of San Francisco, which oversaw the tech start-up bank that went bankrupt on March 10, issued six alerts, categorized as matters needing attention and matters requiring immediate attention. . From those warnings, as the New York Times, it appears that the Fed’s fear, which proved to be true, was that the institute might have difficulty guaranteeing sufficient liquidity to customers in the event of problems. According to Bloomberg, the US authorities would not have been able to find a suitable buyer to take over 100% of the bankrupt bank. For this reason, the Federal Deposit Insurance Corp, the federal deposit insurance agency, is reportedly evaluating the possibility of separating the bank into at least two branches and proceeding with their sale.

The Fed lens in 2022

Alarm bells have gone unheeded. Which is why in July of 2022, Silicon Valley Bank underwent a comprehensive supervisory review, with closer scrutiny, and was ultimately classified as deficient in governance and controls. Eventually the Fed set a series of restrictions on the bank, preventing it from making further acquisitions. In the fall of 2022, San Francisco Fed supervisors also met with bank executives to discuss their ability to access liquidity in the event of a crisis and possible exposure to losses in the event of rising interest rates. interest, underlines the New York Times. The US central bank had realized that the company was using the wrong models to determine how it would react if the central bank raised rates. SVB executives speculated that the increase in interest income resulting from the rate hike would help them improve their financial situation. But this turned out to be an illusion.

The horizontal review at the beginning of 2023

In early 2023, the Fed initiated the so-called horizontal review of Svb policies, an assessment aimed at measuring the robustness of risk management. And that has revealed further shortcomings. But it was already too late. The Fed has launched an investigation into what went wrong with the oversight, which is expected to be published by May 1. But the fact that most of the problems have been known for some time raises the question of whether supervisors could or should have done more to force the institution to address its weaknesses. What is certain that the supervision has been deficient, remains to be understood, as stated by al New York Times Peter Conti-Brown, expert on financial regulation whether it was a failure of the supervisors.