Delays in supervisory action ahead of the Silicon Valley Bank failure were not caused by regulatory tailoring mandates, despite an earlier Federal Reserve report alleging they were, Vice Chair for Supervision Michelle Bowman said, citing preliminary results from an independent report she recently commissioned. Bowman also said the report found no evidence that social media played a significant role in the bank's failure.
The Fed's 2023 internal report concluded supervisors did not fully appreciate SVB's vulnerabilities as it grew in size and complexity, calling the bank's collapse "a textbook case of mismanagement." That report suggested regulatory tailoring mandates passed by Congress may have impeded effective supervision, though its authors acknowledged higher requirements may not have prevented the failure. Bowman, who became vice chair of supervision last year, commissioned Starling Advisory Group to examine the circumstances leading to the failure and shared initial findings from the first report during a speech in London.
Bowman said Fed staff either knew or should have known about SVB's vulnerabilities as early as 2022, with "a long-standing culture of risk aversion" contributing to inaction. The regulatory tailoring mandate did not contribute to supervisory delays, and most social media chatter happened "after SVB's failure was inevitable." The Fed has already directed examiners to prioritize threats that could cause significant harm to a bank's financial condition or U.S. financial stability, rather than focusing excessively on procedural or documentation issues.
Bowman said the Fed is addressing the culture problem directly, noting that too many staff members feel it is personally safer to take no action than to risk taking the wrong action. Going forward, examination teams will submit monthly reports directly to heads of supervision and Reserve Banks, identifying any issue where an examiner was uncertain about whether the standard for supervisory action was met or whether action might conflict with Board or Reserve Bank leadership expectations. The findings remain preliminary, and the full independent report has not yet been released.