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Federal Reserve Speeches·

Bowman, Supervisory Modernization After Silicon Valley Bank

  • An independent review of the 2023 Silicon Valley Bank (SVB) failure revealed that supervisors possessed information regarding the bank's interest rate & liquidity vulnerabilities at least nine months prior to the collapse.
  • The review found that long-standing uncertainty over decision-making authority & a lack of clear accountability prevented timely action & enforcement against SVB's core risks.
  • Supervisory focus at SVB was disproportionately directed toward process, governance, & controls rather than mitigating the material financial risks that ultimately threatened the institution's existence.
  • The Federal Reserve is modernizing its framework to ensure direct allocation of responsibility, clear decision rights for examiners, & direct escalation channels to senior leadership.
  • Recent refinements to the Statement of Supervisory Operating Principles emphasize early identification of material risks & the use of supervisory tools to take proportionate action before safety & soundness is compromised.
  • International standard-setting bodies like the BCBS & FSB are urged to prioritize material risks & validate data rigorously rather than relying on incomplete or unverified initial reports.
  • The BCBS & FSB are criticized for repeating flawed findings from expedited US reports without independent verification, which led to unjustified regulatory work based on inaccurate premises.
  • Supervisory modernization globally requires distinguishing between issues that threaten financial stability & less critical matters to avoid diverting resources toward easy-to-document but low-impact findings.
  • Future success in supervising a rapidly evolving financial system depends on the ability of institutions to identify critical risks & act decisively while there is still time to alter the trajectory.