What we’ve taken to calling the “turmoil” in the banking sector last spring – the failure of Silicon Valley Bank, Signature Bank, and First Republic Bank in the US, and in Switzerland the collapse of Credit Suisse into the arms of UBS – triggered the production of several postmortem inquiries and subsequent reports over the last year. The consensus view that emerges from these studies holds that the turmoil of ‘23 reflects a failure of risk governance, on the part of firms, and flaccid supervisory engagement, on the part of their overseers.
An oft-cited inquiry into the collapse of SVB, released in April last year by the Fed’s Vice Chair for Supervision, Michael Barr, concluded that the bank’s failure reflected “a textbook case of mismanagement.”1 Quite simply, Vice Chair Barr contended, “Silicon Valley Bank’s board of directors and management failed to manage their risks.” He also observed that "Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity," and he lamented that, "when supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough.”
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