The fall of the American Silicon Valley Bank (SVB) is a textbook example of ‘mismanagement by the board’. This is the conclusion of the US central bank after investigating the bankruptcy. According to the Fed, the bank’s board “couldn’t manage even basic interest rate and liquidity risk,” leading the bank to fall last month.
In addition to poor risk management, the Fed writes in the study that there was not enough insight into the vulnerabilities. And if those vulnerabilities were discovered at all, the board didn’t take nearly enough steps to remove those vulnerabilities.
The Fed also points to the role of social media in the fall of SVB. “Technology has fundamentally changed the speed of bank runs,” said Fed Vice Chairman Michael Barr. “Social media enabled savers to directly spread concerns about a bank run, enabling immediate withdrawal of funds.”
In addition to the criticism of SVB, the Fed also takes a critical look at itself in the report. Due to the current systems and frameworks, it was not possible to respond to the problems at SVB in time. Barr therefore argues for better rules in order to be able to respond to risks faster, more powerfully and more flexibly in the future. Barr also argues for better rules from the federal government regarding risk management, liquidity management and capital requirements.