This is partly by design: the report was intended to review the Fed’s supervision and regulation. Yet by focusing only on these issues, it ultimately ignores one of the most important factors affecting financial-sector stability. SVB was not just one bad apple. Four US banks failed at around the same time, largely because they had invested in low-yielding fixed-rate long-term bonds and loans, financed with short-term runnable deposits.
As institutional mea culpas go, the US Federal Reserve’s recent report on the events leading up to Silicon Valley Bank’s (SVB) failure is surprisingly self-critical, detailed, and informative.
While pointing out that SVB did not manage its risks appropriately, the report also castigates supervisors for failing to appreciate SVB’s growing vulnerabilities or pushing it to fix them. The Fed also flags regulatory changes that SVB exploited to avoid closer scrutiny. But the report does not address a crucial matter: the Fed’s monetary policy.
