US Fed faces internal probe over Silicon Valley Bank failure

The Federal Reserve is currently facing an internal probe over its supervision and regulation of the now-collapsed Silicon Valley Bank (SVB). This investigation is aimed at identifying the factors that led to the failure of the bank and determining how the Federal Reserve supervised and regulated SVB prior to its collapse.

According to an announcement made by the Federal Reserve on March 13, Vice Chair for Supervision Michael Barr is leading the review, which is set to be publicly released by May 1. Federal Reserve Chair Jerome Powell also emphasized the need for a thorough, transparent, and swift review of the events surrounding SVB.

Mr. Barr echoed this sentiment, suggesting that the collapse of SVB demands a careful and thorough review of how the bank was supervised and regulated, as well as what lessons can be learned from the experience.

SVB was shuttered by the California Department of Financial Protection and Innovation on March 10, with no specific reason provided behind the bank’s forced closure. However, prior to its collapse, SVB was reportedly on the verge of failing due to liquidity troubles stemming from major losses on government bond investments and bank runs from spooked depositors.

The collapse of SVB marked the second major U.S. bank collapse in the same week following the bankruptcy of crypto-friendly Silvergate, with its parent company Silvergate Capital Corporation announcing a voluntary liquidation on March 8. Adding to the chaos, another crypto-friendly U.S. bank, Signature Bank, also failed on March 12 after the New York Department of Financial Services took control of the firm.

These recent collapses have highlighted the need for stronger banking oversight to prevent further bank failures and protect depositors. In response to these incidents, the Federal Reserve rolled out the $25 billion Bank Term Funding Program, which is aimed at supporting liquidity-troubled banks and curbing further collapses.

The Biden administration has also taken swift action in response to these bank failures, with President Biden outlining in a March 13 statement that the banking system is safe and that depositors should have confidence that their deposits will be secure. He also emphasized that those responsible for the bank failures, including management of the collapsed banks, will be held accountable and possibly prosecuted.

President Biden further called for stronger banking oversight and emphasized that thorough investigations will take place to understand what led to these bank failures.

The collapse of two crypto-friendly banks in the same week has raised concerns about the risks associated with crypto-friendly banks and the need for stronger regulation of this emerging sector of the banking industry. While the Biden administration seeks to strengthen banking oversight and prevent further bank failures, it remains to be seen what lasting impact these collapses will have on the banking industry and the broader economy.

In the meantime, the Federal Reserve’s internal probe of its supervision and regulation of SVB will shed light on the factors that led to the bank’s collapse and help inform future regulatory efforts aimed at preventing similar failures in the future.


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