It is normal for harsh words to be extended to management of a failed financial institution, its culture and conduct — and indeed sometimes, the excesses of market speculation and/or greed. It is rare, however, to conclude that the Fed regulators themselves failed to understand the depth of SVB’s problems and were then too slow to react.
A n event occurred last week that never in my 25-year career in finance had I ever imagined would happen. Michael Barr, the US Federal Reserve’s vice-chairman of supervision appointed by President Joe Biden to lead an exhaustive probe into Silicon Valley Bank’s (SVB) collapse in March, concluded that amongst the myriad of triggers, the Fed itself had been somewhat asleep at the wheel.
As my column “This time it is different — or is it?” (The Edge Singapore, March 20) had surmised, the report highlighted “textbook” failures in managing interest rate risk — the lack of a chief risk officer and management failure, for example. Despite many other market commentators, including Nobel laureate Joseph Stiglitz, lamenting in “No confidence in the Fed” (The Edge Singapore, May 1) while we were pointing out that culpability in US banking regulators was hard to excuse, the self-flagellation was nonetheless a bit of a shock.
