The U.S. Federal Reserve had been worried about Silicon Valley Bank’s risky practices for more than a year before its collapse this month, according to new reports, and had repeatedly warned the bank.
Citing sources familiar with the matter, the New York Times reported Sunday that serious weaknesses were found in a 2021 Fed review concerning how the bank handled its risks, issuing six citations. Despite those urgent calls to address problems, Silicon Valley Bank did not address the vulnerabilities, the Times reported.
Separately Sunday, the Wall Street Journal reported the Fed’s worries about SVB’s risk management dated back to 2019. The Journal also reported that in 2020, the Fed warned SVB that its risk controls did not meet expectations for large financial institutions. At the time, the bank was undergoing rapid growth during the early stages of the pandemic.
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A full supervisory review of the bank by the San Francisco Fed was in effect by July 2022, the Times reported, in which it was rated deficient for its governance and controls. Restrictions were reportedly imposed on the bank, and SVB leaders and Fed officials talked last fall about how the bank could access cash in a crisis amid a rising-interest-rate environment, the Times said.
By early this year, the Times reported, SVB was under a “horizontal review” by the Fed, to test the strength of its risk management — and additional deficiencies were reported. Soon after, there was a run on the bank’s funds and it collapsed.
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Separately Sunday, Reuters reported the Federal Deposit Insurance Corp. is planning to relaunch a sale of Silicon Valley Bank, after no buyers emerged in previous sale attempts over the past week, under a plan that would also break up the bank. Bloomberg News also reported Sunday that the FDIC is eyeing a breakup of the bank as it tries to sell it in two parts.
Purchase bids for SVB’s private bank, which caters to high-net-worth individuals, would be due by Wednesday, according to Reuters and Bloomberg, while bids for the “bridge bank” set up by the FDIC are due Friday, Bloomberg reported.
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