On Monday, U.S. Senator Katie Britt joined Senators Kyrsten Sinema, Thom Tillis, and a bipartisan group of Senators questioning the Federal Reserve its’ oversight of troubled Silicon Valley Bank before the bank’s failure. The Sens. claim that the Federal Reserve missed clear warning signs – including bank leadership’s failure to appropriately manage customer deposits. That it missed as part of its responsibilities to conduct oversight and examinations ahead of Silicon Valley Bank’s collapse.
“SVB is a clear case of regulators refusing to do their job despite the fact that all of the red flags were there,” said Sen. Britt. “The Fed failed to use the tools in their toolbox to prevent what we saw in recent weeks, and I want to know why. Alabamians don’t just want answers, they deserve answers. And I, for one, will not stop until we get them.”
“It is gravely concerning that retail participants, utilizing only publicly available information, were able to identify clear and compelling examples of financial mismanagement and asset over-concentration at SVB, while the Fed, which can draw even deeper from non-public supervisory information, was unable to ascertain a similar conclusion,” the Sens. wrote in their letter. “The fact that the San Francisco Fed, among other regulatory agencies, found no reason to take appropriate regulatory action or even investigate SVB further in the months, weeks, and days prior to the bank’s collapse must be addressed in a manner that restores public confidence in Fed supervision.”
“Safety and soundness is the cornerstone regulatory principle of the U.S. banking system, and it is important we assess what went wrong at SVB to ensure future stability in the U.S. financial services sector. Specifically, we support any efforts that will provide further information on all relevant risks, actions, and inactions – taken by SVB and by regulators, supervisors, and examiners – that contributed to this failure,” the Sens. wrote. “It is gravely concerning that retail participants, utilizing only publicly available information, were able to identify clear and compelling examples of financial mismanagement and asset over-concentration at SVB, while the Fed, which can draw even deeper from non-public supervisory information, was unable to ascertain a similar conclusion. The fact that the San Francisco Fed, among other regulatory agencies, found no reason to take appropriate regulatory action or even investigate SVB further in the months, weeks, and days prior to the bank’s collapse must be addressed in a manner that restores public confidence in Fed supervision. We look forward to evaluating the results of your review, particularly with respect to the robustness of Fed supervision and examination of SVB.”
Britt joined Sinema and Tillis in cosigning the letter. Also cosigning were Sens. John Hickenlooper (D-Colorado), Kevin Cramer (R-North Dakota), Chris Murphy (D-Connecticut), Mike Rounds (R-South Dakota), Cynthia Lummis (R-Wyoming), Bill Hagerty (R-Tennessee), Catherine Cortez Masto (D-Nevada), J.D. Vance (R-Ohio), and Michael Bennet (D-Colorado).
There are media reports that federal regulators knew about the problems at SVB for more than a year, and yet they hesitated to act. The Wall Street Journal reported that federal bank regulators knew Silicon Valley Bank was a troubled bank as early as 2019. In 2021, the Federal Reserve cautioned the bank about significant vulnerabilities in the bank’s containment of risk. SVB had a uniquely concentrated customer base of venture capital funds, venture investors, and start-ups, many of whom have or have had financial relationships or business partnerships with one another. That customer base includes a significant level of financial interdependency that potentially increased risk. The Fed identified the risks to the bank, yet SVB did nothing to mitigate any of the risks.
The Federal Reserve has already announced an internal investigation into its regulatory oversight, supervision, and examination of Silicon Valley Bank. The Senators urged that as part of this investigation, the Fed should focus on the role of concentration risk in the bank examination process and review the financial arrangements between Silicon Valley Bank and its customers to determine their impact on the bank’s collapse.
Katie Britt is a member of the Financial Institutions and Consumer Protection Subcommittee of the Senate Committee on Banking, Housing, and Urban Affairs.
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