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SVB's demise: Why didn't US bank regulators see it coming?

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Juliette Michel, Agence France-Presse

<div class="embed-wrap"><figure data-feedback="fb:likes,fb:comments"><img alt="SVB sign at the headquarters of Silicon Valley Bank (SVB) in Santa Clara, California, USA, 13 March 2023. The Federal Deposit Insurance Corporation (FDIC) took control of the bank" s="" making="" it="" the="" largest="" bank="" to="" do="" so="" since="" finical="" crisis.="" George="" src="https://sa.kapamilya.com/absnews/abscbnnews/media/2023/life/03/14/20230314-svb-epa.jpg"/><figcaption>SVB sign at the headquarters of Silicon Valley Bank (SVB) in Santa Clara, California, USA, 13 March 2023. The Federal Deposit Insurance Corporation (FDIC) took control of the bank&#x27;s assets, making it the largest bank to do so since the 2008 finical crisis. George Nikitin, EPA-EFE</figcaption></figure></div>NEW YORK, United States - With hindsight, there were warning signs ahead of last week&#x27;s spectacular collapse of Silicon Valley Bank, missed not only by investors, but by bank regulators.Just why the oversight failed remained a hot question among banking experts Monday, with some focusing on the weakness of US rules.The Federal Reserve announced Monday plans for a &quot;thorough, transparent and swift&quot; review of the supervision of SVB that will be publicly released on May 1, effectively acknowledging that it could have done better.President Joe Biden promised a &quot;full accounting of what happened,&quot; adding that he would ask regulators and banking regulators to tighten rules on the sector.Banking experts have been among those alarmed at the rapid collapse of SVB, the country&#x27;s 16th biggest bank by assets and how its demise became a harbinger of Sunday&#x27;s failure of another lender, Signature Bank.The failures have &quot;exposed the inadequacy of regulatory reforms that have been made since the global financial crisis,&quot; said Arthur Wilmarth, a law professor at George Washington University.A once-over of the bank would have pointed to clear potential red flags in SVB&#x27;s disproportionate exposure to tech startups, a risky area that can be likened to commercial real estate or emerging markets -- areas that have plagued lenders in the past.Wilmarth noted that SVB grew very fast between 2020 and 2022 and that its exposure to long-date fixed interest bonds made it especially vulnerable to the shift in monetary policy by the Fed.&quot;That&#x27;s almost a sure proof formula for failure. If the economy turns you begin to have trouble,&quot; Wilmarth said.&quot;None of those would have been a mystery to the regulators.&quot;<div>NO EXCUSES</div>Experts pointed as well to the eventual easing of US laws enacted soon after the 2008 crisis.The original Dodd-Frank law of 2010 imposed higher capital, liquidity and other requirements on banks with at least $50 billion in assets.In 2018, with support from former President Donald Trump, this requirement was raised to $250 billion, affecting fewer banks.But that shift in law does not excuse regulators for these failures, according to Anna Gelpern, a law professor at Georgetown University.&quot;When regulatory requirements are relaxed either by the premise that those institutions don&#x27;t pose a risk to the system because of their size or that they are easier to supervise, that puts much more pressure on old-fashioned supervision because you don&#x27;t have the automatic alarm that goes off with the requirements,&quot; she said.&quot;If this was clearly unsafe and unsound behavior,&quot; the banks&#x27; official designation in the law &quot;does not excuse a failure of supervision,&quot; she said.Michael Ohlrogge, an associate professor of law at New York University, said regulators as a matter of course assign &quot;very little to zero-risk weight&quot; in terms of bank capital requirements for Treasury-linked securities because they are considered safe.At the same time, regulators are also lenient with banks with regard to depositors with more than $250,000 -- the threshold for federally insured deposits -- believing the bank has a meaningful business relationship with such clients.&quot;That&#x27;s probably going to warrant revisiting and thinking more seriously about the run risk of uninsured deposits,&quot; Ohlrogge said.<ul class="op-related-articles">	<li><a href="https://news.abs-cbn.com/business/03/12/23/worry-for-tech-startups-after-silicon-valley-bank-failure">Worry for tech startups after Silicon Valley Bank failure</a></li>	<li><a href="https://news.abs-cbn.com/business/03/13/23/biden-to-speak-on-svb-collapse-reassure-world-on-us-banking-resilience">Biden to speak on SVB collapse, reassure world on US banking resilience</a></li></ul>RELATED VIDEO<figure class="op-interactive"><iframe height="315" src="https://www.youtube.com/embed/eRXPDAUNrO0?enablejsapi=1" width="560"></iframe></figure><div class="iwantbar">Watch more News on <a href="https://www.iwanttfc.com/#!/browse/Genres/News/tag_id_genres/id_news" target="_blank">iWantTFC</a></div>

With hindsight, there were warning signs ahead of last week's spectacular collapse of Silicon Valley Bank, missed not only by investors, but by bank regulators.

SVB's demise: Why didn't US bank regulators see it coming?

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SVB's demise: Why didn't US bank regulators see it coming?

Juliette Michel,

Agence France-Presse

Published Mar 14, 2023 01:00 PM PHT

Read More:

SVB

Silicon Valley Bank

US banking

bank collapse

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