The Federal Reserve’s top banking regulator told a Senate panel that Silicon Valley Bank (SVB) failed to properly manage risk before its sudden collapse in early March, calling their efforts “terrible.”
Lawmakers questioned why warning signs were missed during the first hearing into the failures of SVB and Signature Bank and the subsequent market chaos.
"They were issued a matter requiring immediate attention based on the inaccuracy of their interest rate risk modeling," Michael Barr, the Federal Reserve's Vice Chairman for Supervision, told lawmakers. "Essentially, the risk model was not at all aligned with reality."
Several days after SVB’s collapse, Signature Bank unraveled, sending stocks downward and inciting fears of a financial crisis. Demands for better oversight of banks and their executives have followed. Members of the Senate Banking Committee asked how the banks were in such a dangerous position.
"The scene of the crime does not start with the regulators before us. Instead, we must look inside the bank, at the bank CEOs, and at the Trump-era banking regulators, who made it their mission to give Wall Street everything it wanted," said Senator Sherrod Brown, who chairs the panel.
Democrats and Republicans agreed that the banks were mismanaged. Federal regulators vowed to review their rules and procedures while insisting the overall system remains sound, and Barr said that he welcomed an independent review of the Fed’s supervision of SVB.
Both banks grew quickly, ending up with large amounts of uninsured deposits, which took off rapidly when trouble became evident according to Barr.
"It may be tempting to look at all this and say, we don't need new rules. The real problem was these arrogant executives," said Brown. "But there will always be arrogant executives. That's exactly why we need strong rules."