OPINION: Learning what grade the San Francisco Federal Reserve gave Silicon Valley Bank (SVB), the largest bank under their watch, would go a long way to understanding how badly they miss supervised the bank.
The failure of Silicon Valley Bank SIVB, -60.41% is a failure of federal supervision as well as regulation.
4. Dash for cash to the Federal Home Loan Bank: As SVB needed cash, it used the arcane Federal Home Loan Bank system to borrow heavily — becoming the San Francisco FHLB’s top borrower at $20 billion. This does not even include questions about the relationship between SVB’s venture-capital arm and the bank’s customer base, a potential red flag the Fed’s regulation of the bank holding company should have analyzed.The Fed has already launched an inquiry into its own failure, but that is likely to be insufficient. For example, a Fed self-investigation did not uncover leaked information by the president of Richmond Bank .
Congress writes financial regulation with two possible outcomes: setting specific rules in law or empowering regulators to figure out the details. In both cases Congress relies on regulators to enforce the rules. Congress cannot legislate judgement or competence. The U.S. financial regulatory system places substantial confidence in the judgement and competence of bank regulators, particularly the most powerful: the Federal Reserve. In the case of Silicon Valley Bank, that was misplaced.
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