Last week, the U.S Federal Reserve released its “Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank”. Comments from the report and Michael Barr, its Vice Chair for Supervision, included:

“Silicon Valley Bank (SVB) failed because of a textbook case of mismanagement by the bank. Its senior leadership failed to manage basic interest rate and liquidity risk. Its board of directors failed to oversee senior leadership and hold them accountable. And Federal Reserve supervisors failed to take forceful enough action.
“The combination of social media, a highly networked and concentrated depositor base, and technology may have fundamentally changed the speed of bank runs. Social media enabled depositors to instantly spread concerns about a bank run, and technology enabled immediate withdrawals of funding.
“[SVB's] customer base was heavily concentrated in VC-backed technology and life sciences companies.

Chart 1: SVB client funds by client type (year end 2022)

“Our banking system is sound and resilient ... however, SVB’s failure demonstrates that there are weaknesses in regulation and supervision that must be addressed."

OUR TAKE

SVB's failure illustrates “top of the market” issues including 1) hubris and overconfidence by senior executives and 2) reduced/lack oversight by government regulators (Note: SVB CEO Greg Becker was a board member of the San Francisco Federal Reserve as SVB was collapsing).
"Blame game" commentary about SVB, and other troubled financial entities, will highlight 1) weakened regulations by prior government administrations and 2) the policy of rising interest rates by the Federal Reserve.
Government oversight of financial activities will become more rigorous - and technology innovation will introduce new challenges.

On Silicon Valley Bank's Failure