Davis Polk Client Alert Highlights Fed OIG Report on SVB Failure

A recent Davis Polk client alert laid out both the similarities and differences between a Federal Reserve OIG Report on the failure of Silicon Valley Bank (SVB) and a report authored by Michael Barr, the current Vice Chair for Supervision at the Federal Reserve, which was released very shortly after SVB’s failure. Davis Polk notes the OIG report “was a more independent review” and spent more time examining the evidence and reflecting on the root causes of risk management and supervision deficiencies. The Barr Report was “essentially a self-assessment by the supervisory staff of the root causes of SVB’s failure, including deficiencies in risk management and the staff’s own supervision of SVB.” The OIG Report and the Barr Report found that “the primary cause of SVB’s failure was rooted in basic risk management mistakes by its senior leadership and deficient oversight by its board of directors.” The risk management errors include a concentrated business model that focused on clients in private equity and venture capital, rapid growth, a high concentration of uninsured deposits, SVB’s decision to hold long-dated, fixed rate debt securities, and a failure of management to appreciate the risk and heed early warnings of issues at the Bank as interest rates increased. The OIG Report also highlighted the Fed’s failure to “catch and remediate the fundamental mismanagement of [SVB] which violated basic ‘Banking 101’ principles of asset and liability management.”

Click here to read the Davis Polk Client Alert on the Fed OIG report on SVB’s failure.
Click here to read the Federal Reserve OIG Report on the SVB failure.