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Fed Spotted Red Flags at Silicon Valley Bank Years Ago: NYT

  • Fed officials saw issues with Silicon Valley Bank years before it collapsed, according to a NYT report.
  • Officials first identified red flags in a 2021 review of SVB, a familiar source told the NYT.
  • Those issues remained unaddressed, leading to the bank’s failure in early March.

The Federal Reserve spotted red flags at Silicon Valley Bank years before it collapsed, according to a report from the New York Times.

The NYT reported that Fed officials found issues with the now-failed bank after a review in 2021. Supervisors from the San Francisco Fed gave SVB six citations that year, a source told the publication, under warnings titled “matters requiring attention” and “matters requiring immediate attention,” flagging liquidity concerns at the lender. 

Despite that, the issues went unaddressed at the bank, leading to a more thorough Fed review in July 2022. Officials found that SVB had inadequate oversight and control measures, and the bank was placed under restrictions that prevented it from expanding its operations, the report said.

In the fall of 2022, Fed officials reportedly spoke to SVB executives, raising concerns over the bank’s liquidity and how it was calculating its capital position amid rising interest rates.

According to an estimate by the FDIC, the Fed’s 450 basis-points worth of interest rate increases over the last year have cost US banks $620 billion in unrealized losses. But SVB executives thought higher rates could be a positive as it would boost the bank’s interest rate revenue, the report said. The firm in March posted a $1.8 billion loss on its bond portfolio days before it was shuttered by regulators and taken over by the FDIC. 

Officials conducted another review to assess SVB’s risk management in early 2023, where it once again found inadequacies, the source said.

The collapse of SVB has sparked fears of a wider banking crisis, with other mid-sized US banks like First Republic struggling against contagion concerns. Shares of First Republic have been under pressure even after it received a lifeline in the form of $30 billion worth of new deposits from a group of large US banks. 

The Fed has said it will investigate its supervision of SVB and will report its findings on May 1. A previous report from the NYT found that Powell blocked a statement on the regulatory failings that led to SVB’s collapse, as Powell wanted to focus the public’s attention on efforts that had been taken to strengthen the banking system since the 2008 crisis. 

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