The California agency responsible for regulating banks acknowledged Monday that it took too long to recognize the problems that led to the failure of the Silicon Valley Bank.
Even though the bank was being examined and taking some steps to stay healthy, the California Department of Financial Protection and Innovation said its own staff “did not take adequate measures to ensure SVB did so with enough speed.” the report said.
The findings were part of a 74-page report from the agency, released Monday, that discusses why Santa Clara-based SVB collapsed March 10, and how regulators dealt with the bank.
SVB’s failure shook the financial world as customers scrambled to withdraw billions of dollars. It was hit hard by rapidly rising interest rates — which meant its investments were losing value — leading to a bank run that forced it to close.
The collapse marked the start of an unusually tense, shaky period for the banking industry. Signature Bank closed shortly after SVB, and at the end of April, regulators closed San Francisco-based First Republic., which was purchased by JPMorgan Chase Bank.
First Citizens Bank & Trust Company has purchased SVB’s deposits and loans. Its spokeswoman did not respond to a request for comment Monday.
The California agency performs bank examinations both independently and with federal regulatory agencies, primarily the Federal Deposit Insurance Corporation and the Federal Reserve.
The report details its own actions and suggests improvements for the future.
It noted how the examiner in charge of reviewing the bank said there was a need for additional resources to review SVB. But “examiners with the necessary experience and skill sets were already assigned to key roles in other bank examinations, which delayed the allocation of additional staff,” the report said
Among the steps the California regulators said it would take is to review its “its internal staffing processes to ensure that additional staff members are assigned in a timely manner, commensurate with accelerated growth or increased risk profile for an institution, for banks with assets of more than $50 billion.”
But, the report said, “Even with the benefit of hindsight, it is difficult to identify any one action or set of actions that regulators could have taken that would have been guaranteed to prevent SVB’s collapse.”
In the future, the California regulator said it would coordinate with its federal counterparts to “develop stronger and more effective systems to remediate deficiencies promptly,” and add additional levels of supervisors’ reviews.
The state report noted how the Federal Reserve called it a challenge to determine “how much weight to put on the decisions of (the bank’s) board and management, the design of the Federal Reserve’s supervision and regulation, the execution of that supervision and regulation, and the specific combination of environmental factors that materialized in 2022 and early 2023.”
