Report faults Fed staff for epic failure of Silicon Valley Bank

By Matt Egan, CNN

New York (CNN) — Staffers at the Federal Reserve knew or should have known about the severe trouble mounting at Silicon Valley Bank, but failed to act before the lender’s implosion set off a mini-banking crisis in 2023, according to an independent review revealed on Friday.

The preliminary report, as detailed by Fed officials, adds to the blame game over the second-largest banking failure in American history, an event that prompted Fed and Biden administration officials to scramble to put out the fire before it spread.

In a speech on Friday, Michelle Bowman, the top banking regulator at the Fed, said the independent report found that Silicon Valley Bank “failed as the result of confluence of vulnerabilities” that included mounting losses on securities, a deposit base that was prone to bank runs and a lack of readiness to borrow from a critical Fed program.

“Our supervisory staff knew, or should have known, about these vulnerabilities as early as March 2022,” Bowman said, summarizing the preliminary findings.

Even though Fed officials knew or should have known about the trouble, Bowman said staffers failed to take “prompt and decisive action” that could have prevented the collapse.

“One significant factor contributing to supervisory inaction was a long-standing culture of risk aversion,” said Bowman, whom President Donald Trump nominated last year to become the Fed’s vice chair for supervision. “Staff believed it was personally safer to take no action unless they were certain the action was exactly right.”

Bowman added that the cultural problems were compounded by a “lack of clarity” over decision-making among supervisory staffers.

“This review is not about assigning blame. Instead, it is about learning lessons from the past to avoid repeating them in the future,” Bowman said.

The Fed did not release a copy of the report, which was conducted by Starling Advisory Group. Starling did not immediately respond to an inquiry from CNN.

By pointing the finger at Fed regulators, Bowman’s overview of the preliminary findings highlight failures that would have occurred under her predecessor, Michael Barr.

Barr, a Biden-nominated official, served as the Fed’s top regulator between July 2022 and early last year. After stepping down as vice chair for supervision, Barr remained on the Fed’s powerful Board of Governors and still votes on interest rate decisions.

Trump blasted Fed officials this week for raising interest rates for the first time in three years. He praised Fed Chairman Kevin Warsh, his handpicked Fed chief, but condemned the “very hostile” and “very political” board.

Analysts told CNN on Friday that it’s possible Trump could use the new report on Silicon Valley Bank to try to force out Barr, opening up a vacancy for a Trump-aligned nominee.

“It’s hard to say for sure, but there’s no getting around that suspicion,” especially after Trump’s recent criticism of the Fed board, Benson Durham, a former Fed official, told CNN.

Sen. Elizabeth Warren, the top Democrat on the Senate Banking Committee, sharply criticized Bowman over the Silicon Valley Bank review.

Warren said in a statement on Friday that Bowman has “wasted taxpayer resources” on a third-party “autopsy that magically and conveniently exonerates her and President Trump of any wrongdoing.”

“It’s an embarrassing attempt to rewrite history designed to pave the way for more dangerous deregulation that will lead to the next Silicon Valley Bank disaster,” Warren said.

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