Fed Governor: SVB's bankruptcy a case of 'mismanagement'

Fed Vice Chairman of Financial Institutions Michael Barr noted that the bankruptcy of Silicon Valley Bank (SVB) was a "case of mismanagement" and that the bank's management failed to effectively manage interest rate and liquidity risk. The Fed shared the text of Barr's speech to be given at the hearing to be held tomorrow by the US Senate Banking, Housing and Urban Affairs Committee on recent bank failures and the intervention of federal regulators. Emphasizing that the US banking system is robust and resilient with strong capital and liquidity, Barr stated that they will continue to closely monitor conditions in the banking system and that they are ready to use all tools, if necessary, for institutions of all sizes to keep the system safe and sound. Barr made the assessment that "SVB failed because the bank's management failed to effectively manage interest rate and liquidity risk, and the bank then suffered the devastating and unexpected escape of uninsured depositors in less than 24 hours." “The bank waited too long to fix its problems” Stating that SVB’s bankruptcy requires a comprehensive review of the Fed’s oversight of the bank, Barr said, “SVB’s bankruptcy is a textbook case of mismanagement.” Michael Barr commented, “The bank waited too long to fix its problems, and ironically, its belated measures to strengthen its balance sheet fueled the flight of uninsured depositors that led to the bank’s bankruptcy.” Pointing out that SVB’s bankruptcy threatens the entire banking system, Barr announced that they are working on improving stress testing and changing liquidity rules, in addition to long-term debt requirements for large regional banks. SVB, the 16th largest bank in the U.S., was put under receivership on March 10, and the bank’s bankruptcy was one of the biggest bank failures since the 2008 global financial crisis.