Federal Reserve supervisory staff ‘knew, or should have known’ about Silicon Valley Bank’s vulnerabilities as early as March 2022, but failed to act promptly to reduce the bank’s exposure to interest rate and concentration risks, according to an independent review announced by Vice Chair Michelle Bowman.
The review, conducted by the Starling Advisory Group, examined the supervisory failures preceding Silicon Valley Bank’s collapse in March 2023. It found that a long-standing culture of risk aversion among supervisory staff was a significant factor in the delay. Staff believed it was personally safer to refrain from acting unless they were certain an intervention was exactly right, the review found.
The findings amount to a direct assessment of the Federal Reserve’s oversight of a bank whose weaknesses had been visible well before its failure. Silicon Valley Bank held a deposit base that was 94 percent uninsured and heavily concentrated among venture capital-backed technology companies. Its securities portfolio also carried unrealised accounting losses that, at one point, exceeded the bank’s total capital.
Before the collapse, Silicon Valley Bank disclosed a $1.8 billion loss on securities sales. Yet the review found that examination staff did not take prompt action to push the lender to reduce its interest rate risk or its concentration of risks.
At the time of the failure, the bank had 31 unresolved safety and soundness supervisory issues, roughly three times the average for comparable banks.
A lack of clarity over decision rights compounded staff members’ reluctance to act, according to the review.
The Starling review rejected several explanations that have featured in debate over the failure. It found that delays in supervisory action did not result from a 2018 regulatory tailoring law. It also found no evidence that a directive from the former vice chair for supervision to reduce supervisory intensity caused the delay. The former vice chair for supervision had left the role in October 2021.
A separate assessment by Charles River Associates found no evidence that social media accelerated Silicon Valley Bank’s bank run. It said 96 percent of social media activity connected to the run appeared only after the bank’s failure was inevitable.
The Federal Reserve said it would change its internal reporting process in response. Examination teams will be required to send monthly reports directly to supervision leadership identifying any matter in which examiners are uncertain whether action is warranted.
The review was commissioned by Bowman, who was nominated by President Donald Trump and subsequently confirmed to the position. Her announcement follows the departure of Michael Barr from the supervisory role in February 2025.
The report attributes the delay to the Federal Reserve’s decision-making culture and unclear authority over supervisory action. It found that supervisors had sufficient information by March 2022 to identify the risks that preceded Silicon Valley Bank’s collapse in March 2023.
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