new York It was the second-largest bankruptcy in US history and the first digital bank run: the end of the Silicon Valley Bank (SVB) in March also brought the role of regulators into focus. And they should have reacted much faster and more decisively, according to a report published by the US Federal Reserve on Friday.
For example, supervisors at the regional central bank in San Francisco were concerned about the state of the SVB months before the acute crisis in March. They issued the bank with a total of 31 warnings. The main focus was on the bank’s risk and liquidity management.
The regulators have not achieved any real changes. As early as November, the Fed decided to downgrade the SVB in its internal rating. “But the bank failed before that could happen,” says the report, prepared by Fed Vice Chairman Michael Barr. Barr has been with the Fed since July and is responsible for bank regulation there.
In their work, supervisors have also underestimated the impact that Twitter and the widespread adoption of digital banking could have on the banking system. “Social media allowed depositors to immediately spread concerns about a bank run,” it said. And mobile banking “allowed for the immediate withdrawal of funds.”
Regulators must therefore act faster and more decisively in the future. Medium-sized banks also have to adapt to a series of stricter regulations. However, it could take years for these rules to be introduced, according to financial sources.
Allegations against the leadership of the SVB
The Fed emphasized in its report that the management and the board of directors of the SVB had also made serious mistakes. The authors criticized SVB as a case of “mismanagement, as it is written in the textbook”. “The bank’s top management failed to manage fundamental interest rate and liquidity risk. The board of directors failed to oversee executives and hold them accountable.”
The SVB had parked a large part of customer deposits in long-term US Treasury bonds because they had the highest yields before the Fed’s interest rate hike. However, as interest rates have soared over the past 13 months, the value of these bonds has fallen, triggering large book losses.
Since SVB customers have increasingly withdrawn deposits in recent months, the bank was forced to sell the bonds at a loss of billions and to seek a capital increase. This frightened investors and customers alike and ultimately led to the bankruptcy of the SVB.
The uncertainty also spread to other US regional banks. The First Republic Bank continues to struggle to survive. In the meantime, the situation has stabilized again at a number of other institutes, as the figures for the first quarter show.
More: Dwindling deposits and competitive pressure – The SVB is facing a difficult new start