Ever since its initial collapse, Silicon Valley Bank(SVB) has been at the top of most news headlines around the United States. However, what many don’t know is that SVB was on the radar of the Federal Reserve well before its tragic downfall. Sources say that the bank received a plethora of warnings from the Fed that they were facing serious problems.
Weaknesses Discovered
The Federal Reserve reviewed Silicon Valley Bank during the year 2021. Supervisors of the Fed reported discovering serious weaknesses regarding how the bank was managing its risks. SVB received six fines from the Federal Reserve as a result of that 2021 review. Supervisors of the Fed also listed several warnings to the bank. These warnings were categorized as either, “matters requiring attention” or “matters requiring immediate attention”.
The entire review was conducted by the supervisors of the Federal Reserve Bank in San Francisco, California. Furthermore, these supervisors also made note that the bank was doing poorly in ensuring it has enough liquid cash in the case of a negative economic event.
Problems Remained Unsolved
Ultimately, Executives at Silicon Valley Bank did not take any of these warnings and citations they received from the Fed seriously. This caused the bank to be under full review by the Federal Reserve in the summer of 2022. Restrictions were placed on SVB that made it impossible for the bank to try and grow through mergers & acquisitions.
Once these restrictions were imposed on the bank, Supervisors of the reserve were meeting regularly with SVB executives discussing liquidity in the case of an event. These supervisors quickly discovered that bad models were being used by the leaders at Silicon Valley Bank.
Too Little Too Late
After these discoveries were made in late summer of 2022, the Fed was scrambling to try & help the dying bank. However, the more the Federal Reserve investigated, the more inefficiencies they discovered. Eventually, it became too late, and the bank collapsed which sent an initial ripple of fear throughout the country. The federal government has stepped in to prevent a mass pull-out of banks which would be catastrophic to the economy.
Wrap Up
While the initial collapse of SVB sent shockwaves throughout the nation, it is still unknown if this will have more of a long-term effect on the economy than people think. Currently, the Federal Reserve is reviewing everything that went wrong, so more will be known when that report is published.