Federal Reserve Vice Chair for Supervision Michelle Bowman has released the preliminary findings of an independent review into the collapse of Silicon Valley Bank. The review determined that the bank simultaneously faced securities losses exceeding its capital base, a heavy concentration of uninsured deposits from technology firms, and a lack of operational readiness for discount window funding. Supervisors reportedly knew or should have identified these issues as early as March 2022, but an internal culture of risk aversion and unclear accountability hindered timely intervention.
The external review, conducted by Starling Advisory Group and independent of the Fed's internal staff and leadership, attributes the bank's failure to three overlapping risk factors. First, SVB held a large portfolio of long-term securities. The Fed's rapid interest rate hikes drove down the value of these assets, pushing unrealized losses beyond the bank's capital and raising market doubts about its solvency. Second, 94% of the bank's deposits lacked federal deposit insurance coverage, with clients heavily concentrated among venture capital-backed technology startups. These interconnected customers were more likely to shift funds simultaneously when trouble emerged. Third, the bank had not prepared operationally to access emergency liquidity through the Fed's discount window, leaving it unable to convert eligible assets into cash quickly when deposits fled.
Supervisors chose to wait for more evidence rather than act decisively. The review found that Fed examiners knew or should have known about these vulnerabilities by March 2022, yet failed to require SVB to reduce interest rate risk, improve its deposit structure, or bolster liquidity preparedness. A key reason for the sluggish response was a long-standing culture of risk aversion within the supervisory ranks. Some personnel believed that failing to act was safer for their careers unless they could be certain their measures were entirely correct. The system also suffered from unclear decision-making authority, with responsibility, power, and accountability fragmented such that frontline staff could not determine who held final authorization for specific actions. This conclusion points further into the Fed's internal decision-making machinery: supervisors detected the risks but kept seeking additional data and internal consensus rather than escalating issues into binding enforcement measures.
Previous and current reviews offer divergent explanations for the supervisory delays. The 2023 internal post-mortem also determined that SVB's management failed to control interest rate and liquidity risks, and that supervisors failed to force timely remediation. At that time, the bank still had 31 unresolved safety-and-soundness warnings, roughly three times the average for comparable institutions. However, the two reviews differ on the institutional causes of the slow response. The 2023 report argued that the tiered supervisory framework implemented after 2018 lowered certain standards, added complexity, and pushed supervision toward a more cautious posture. In contrast, this external review found no evidence that the 2018 law's differentiated requirements caused the delay, nor that the then-Vice Chair for Supervision had directed a relaxation of oversight intensity. Instead, it attributes the delay primarily to personnel-level risk aversion and ambiguous internal authorization structures. Both reviews agree that SVB's own risk management failed and that regulatory actions after identifying the problems lacked speed and force; the core disagreement centers on whether eased supervisory policy directly precipitated the outcome.
The new review also challenges the narrative that social media accelerated the bank run. A commissioned analysis found no evidence that social media triggered or sped up the deposit flight, with roughly 96% of related online discussion occurring only after the bank's failure had become inevitable. The 2023 internal report had suggested that social media, highly networked depositor groups, and instant transfer technology could alter the speed of bank runs. The latest findings indicate that SVB's balance sheet vulnerabilities and depositor structure were the fundamental drivers enabling the rapid run.
In response, the Federal Reserve has already begun adjusting its supervisory practices. Examination teams must now submit monthly reports directly to supervisory heads and relevant regional Fed banks, listing issues where examiners cannot determine whether action thresholds have been met or where they worry measures might conflict with leadership expectations. Updated supervisory principles require examiners to prioritize risks that could severely damage a bank's financial condition or financial stability, reducing over-attention to low-impact processes, procedures, and documentation matters. Beyond formal enforcement actions, tools will now include non-binding supervisory opinions, allowing examiners to calibrate responses based on issue severity. Bowman stated that the goal moving forward is to empower frontline staff to proactively escalate risks even amid uncertainty. These findings remain part of the preliminary phase of a broader review series, and she noted that her remarks reflect her personal views and do not necessarily represent the positions of other Federal Reserve Board members.
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