Silicon Valley Bank and Fed supervisors: what’s known so far

SAN FRANCISCO, March 30 (Reuters) – A workforce of 20 financial institution examiners on the San Francisco Federal Reserve took over day-to-day supervision of Silicon Valley Financial institution within the second half of 2021, after the financial institution’s progress pushed its property above the $100 billion mark that triggers extra intense oversight.

Quickly after, supervisors started calling out issues on the financial institution, however solely internally. None had been made public till after the financial institution’s failure on March 10, 2023, and far remains to be unknown.

Fed Vice Chair of Supervision Michael Barr has promised full disclosure as a part of his supervisory overview due out Could 1.

Here is what regulators noticed — however the public didn’t — within the lead-up to the collapse. The main points come from testimony given by regulators to Congress this week.

NOVEMBER 2021

Examiners problem six citations — “issues requiring consideration” (MRA) and “issues requiring speedy consideration” (MRIA) — associated to the financial institution’s liquidity stress testing, contingency funding, and liquidity threat administration.

The citations come simply because the Fed has begun to telegraph that it’ll quickly begin elevating rates of interest to battle inflation.

Banks of SVB’s dimension should conduct quarterly liquidity stress checks to evaluate the financial institution’s resilience to each rising and falling rates of interest.

SVB’s checks, supervisors discover, aren’t “annoying sufficient; they weren’t reasonable… it performed these checks and the steering again from the supervisors was that the checks had been insufficient,” Barr instructed Congress.

APRIL 2022

SVB’s chief threat officer Laura Izurieta steps down. The publish stays vacant till December 2022, when Kim Olson takes the job.

MAY 2022

Supervisors problem three findings associated to ineffective board oversight, threat administration weaknesses, and the financial institution’s inner audit operate, based on Barr’s testimony.

SUMMER 2022

SVB will get its first supervisory rankings as a big financial institution: a downgrade to a “3” on its total score and a “3” on its administration score.

The scores imply the financial institution is “not well-managed,” Barr mentioned this week.

“The supervisors instructed the board of administrators and the financial institution that the board oversight with respect to threat administration was poor,” Barr mentioned this week.

SVB’s liquidity score is a “2” — passable.

“We try to grasp how that’s constant” with the opposite, decrease rankings, Barr mentioned.

A “3” score triggers what business specialists name the “penalty field” the place the financial institution is barred from progress by acquisition.

They aren’t low sufficient to benefit inclusion on the FDIC’s confidential “drawback financial institution” checklist.

“We’re taking a look at whether or not these requirements had been sufficiently stringent, whether or not the agency ought to have been downgraded additional, and whether or not additional supervisory steps ought to have been taken,” Barr mentioned.

OCTOBER 2022

The supervisors meet with the CFO “to convey the seriousness of the findings straight,” Barr mentioned.

NOVEMBER 2022

Supervisors ship an extra MRA “based mostly on the inaccuracy of their interest-rate threat modeling” which was “under no circumstances aligned with actuality,” Barr mentioned.

“The fashions steered they earn more cash after they had been shedding more cash,” he mentioned.

EARLY 2023

By now the Fed’s battle towards inflation has lifted short-term charges by 4.5 share factors since March 2022. Fed supervisors start a “horizontal overview” of a number of banks, together with SVB, for interest-rate threat.

FEB 2023

Fed workers give a presentation to Barr and different Board members about rate of interest threat usually and at Silicon Valley Financial institution specifically. That is the primary time Barr learns of the interest-rate threat at SVB.

“Employees indicated that they had been finishing their overview of the financial institution and of the broader horizontal overview at the moment and I used to be ready for the outcomes of that overview,” Barr mentioned this week.

MARCH 8

Silicon Valley Financial institution declares it offered “considerably all” of its securities that had been accessible on the market and sought to boost extra capital in what CEO Greg Becker instructed shareholders was a strategic motion to “higher assist earnings in a higher-for-longer fee atmosphere.”

The transfer was a “belated” try to enhance the financial institution’s liquidity place, Barr mentioned this week, “and so they did it in a means that spooked traders and spooked depositors and spooked the market.”

MARCH 9

“The financial institution was reporting to supervisors Thursday morning that deposits had been secure,” Barr mentioned. “Thursday afternoon, late afternoon, I grew to become conscious of deposit flows, and Thursday night that there was primarily a financial institution run.”

AFTERNOON MARCH 9 – MORNING MARCH 10

Fed workers and the financial institution work collectively via the night time to maneuver as a lot SVB collateral as they will to the Fed in order that SVB can get emergency loans via the Fed’s “low cost window” to satisfy calls for for withdrawals. Over 24 hours, 85% of the financial institution’s deposits are withdrawn or tried to be withdrawn. The financial institution can’t meet these calls for. Regulators shut it down.

Reporting by Ann Saphir; enhancing by Megan Davies & Shri Navaratnam

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