Fed Official Blames 'Risk Aversion' for SVB Oversight Gaps
Fed Vice Chair for Supervision Michelle Bowman says a culture of risk aversion, not relaxed rules, hindered oversight before Silicon Valley Bank's collapse.
A long-standing culture of risk aversion among Federal Reserve examiners, rather than relaxed oversight, contributed to the collapse of Silicon Valley Bank, a top Fed official said on Friday while presenting the initial findings of a fresh review into the 2023 failure.
The conclusions outlined by Fed Vice Chair for Supervision Michelle Bowman diverge from parts of the central bank's earlier postmortem, which was led by her Democratic predecessor, Michael Barr.
Bowman, nominated to the supervision role last year by President Donald Trump after Barr stepped down before his term ended, had previously called for an independent study of the failure. She engaged consultancy Starling Trust Advisors to conduct the review.
According to Bowman, the review found that SVB failed from a combination of vulnerabilities, including large unrealized accounting losses, an unstable deposit base, and a lack of readiness to secure emergency borrowing when needed. She said Fed supervisors knew or should have known about those risks as much as a year before the lender's collapse, and failed to act promptly and decisively. She attributed that inaction to the risk-averse culture as well as unclear decision-making and direction at the Fed.
The findings drew swift criticism from Senator Elizabeth Warren, the senior Democrat on the Senate Banking Committee, who described the report as an embarrassing attempt to rewrite history aimed at paving the way for more dangerous deregulation.
Bowman is leading a broad effort by U.S. bank regulators to streamline bank rules and oversight. Barr's earlier review had found that under his Republican predecessor Randal Quarles, also a Trump appointee, examiners felt pressured to go easier on banks while facing a higher burden of proof for supervisory conclusions, particularly after Congress passed a 2018 law directing the Fed to ease rules for many banks. Quarles has disputed that account, saying supervisors had always been fully supported by Fed leadership and that he expressly encouraged examiners to focus on liquidity risk and concentration of deposit risk.
Bowman said any supervisory delays were not caused by the 2018 law or by any directive or suggestion to reduce scrutiny, noting that Quarles had stepped down months before SVB's vulnerabilities became apparent. Barr said his report showed the need to toughen bank rules and oversight, especially for larger regional lenders, but many of his preferred changes were not enacted amid industry pushback and skepticism from some lawmakers.