While Thorough, Fed Report Refuses To Name Names On SVB Failure

In response to the Federal Reserve releasing a report assessing its regulatory and supervisory failures in the runup to Silicon Valley Bank (SVB)’s collapse, Revolving Door Project Executive Director Jeff Hauser issued the following statement:

“It will take a few days to fully process the Fed’s self-investigation. On an initial read, though, we applaud the report’s thoroughness and the Fed’s willingness to release primary sources and confidential information. That said, one glaring blind spot does jump out: the complete absence of the names ‘Quarles,’ ‘Barr,’ ‘Powell,’ or any other actual member of the Federal Reserve Board of Governors from the main text of the report.”

“The narrative that emerges is that in the years before SVB’s collapse, the Board of Governors began instructing supervisory staff to go much easier on regulated banks, including SVB. The hierarchical nature of the Fed, and unclear delineation of authority between the Board in DC and the Reserve Banks nationwide, meant that Reserve Bank staff often worked alongside, deferred to, and were supervised by Board staff, who answer to the Governors. This substantially shifted overall Fed supervision, including of SVB, in a laissez-faire direction.”

“That’s far from the only factor the report identifies, but it is one that is both entirely within Fed officials’ control, and one which has substantial ripple effects across the other issues — for example, SVB’s inflated grades on supervisory reports for years before the collapse appears to be heavily influenced by the Fed’s laissez-faire culture at the time, and SVB’s artificially high grades on one examination often led to less rigor from supervisory staff on its next examination.”

“If there is a problem coming from the top, an independent, thorough report would have named who at the top is to blame. Readers can strongly infer that former Vice Chair for Supervision Randal Quarles was a major player, and we echo Accountable.US’s calls for him to testify before Congress. But the Vice Chair for Supervision does not manage the staff of the Federal Reserve without the Chair’s approval, meaning Jerome Powell is ultimately responsible. Moreover, Michael Barr himself had eight months in office to reverse course and act on key priorities before the SVB collapse. Why did he not revert supervisory staff to practices at least as stringent and skeptical as under Daniel Tarullo?”

“We raised concerns ahead of the report’s release that its structure — effectively, Barr and Powell investigating themselves — could bias its findings and focus. While we are grateful for the work that evidently went into this report, we reiterate our call for a truly independent investigation conducted by people free to hold the individuals with ultimate responsibility for these regulatory failures accountable: the leaders of the Federal Reserve.”