Report finds 'culture of risk aversion' hindered oversight of SVB, Fed official says

• Fed supervisors knew or should have known about SVB's vulnerabilities—including unrealized losses, unstable deposits, and lack of emergency borrowing readiness—up to a year before collapse but failed to take 'prompt and decisive action'
• Bowman's report, conducted by consultancy Starling Trust Advisors, rejects claims that the 2018 deregulation law or directives to reduce scrutiny caused supervisory failures
• Senator Elizabeth Warren criticized the report as 'an embarrassing attempt to re-write history' designed to enable deregulation, while Bowman leads efforts to streamline bank rules and oversight

Summary: Competing Reviews of Silicon Valley Bank Collapse Reveal Regulatory Discord

Federal Reserve Vice Chair for Supervision Michelle Bowman presented findings Friday that contradict an earlier review of Silicon Valley Bank's March 2023 collapse. The new report, conducted by consultancy Starling Trust Advisors, attributes SVB's failure to a "culture of risk aversion" among Fed examiners rather than relaxed regulatory oversight.

Key Findings:

The Starling review identified SVB's collapse stemmed from multiple vulnerabilities: large unrealized accounting losses, an unstable deposit base, and inadequate emergency borrowing preparedness. Critically, Fed supervisors were aware of these risks up to a year before the failure but failed to take "prompt and decisive action" due to examiner risk aversion and unclear Fed decision-making.

Political Context:

Bowman, nominated by President Trump after predecessor Michael Barr's departure, commissioned this independent review. Her findings directly contradict Barr's earlier report, which blamed relaxed supervision under Republican predecessor Randal Quarles and the 2018 Congressional law easing bank regulations. Bowman disputed this, stating supervisory delays were unrelated to the 2018 law or any directives to reduce scrutiny.

Market Implications:

The conflicting narratives have significant regulatory implications. Senator Elizabeth Warren criticized Bowman's report as "an embarrassing attempt to re-write history" that could enable "dangerous deregulation." Barr had advocated for tougher rules on larger regional lenders, but his proposed changes stalled amid banking industry opposition and congressional skepticism.

Bowman is currently leading efforts to streamline bank regulations, suggesting potential deregulatory momentum that could affect oversight standards for regional and mid-sized banks moving forward.