Fed vice chair blames 'culture of risk aversion' for SVB collapse

Federal Reserve Vice Chair Michelle Bowman on Friday presented initial findings from an independent review showing that supervisory staff recognized Silicon Valley Bank's vulnerabilities more than a year before its collapse but delayed intervention due to internal cultural barriers.

Starling Advisory findings

Speaking at the Mansion House in London, Bowman shared the Starling Advisory Group's report which highlighted severe flaws in the central bank's oversight mechanisms. The review found that staff identified SVB's unrealized accounting losses, its 94% uninsured deposit base and operational weaknesses as early as March 2022, yet postponed prompt corrective measures despite the bank's deteriorating condition.

Culture of inaction

Bowman stated that a long-standing culture of risk aversion caused the supervisory failures, noting that examination staff believed taking no action was safer than risking an incorrect supervisory decision. The report also debunked claims that social media triggered the bank run, finding that 96% of online chatter occurred only after the bank's failure became inevitable.

Reform measures

The Federal Reserve has issued a new set of operating principles to prioritize significant threats and combat the culture of risk aversion within its supervisory ranks. The central bank now requires examination teams to submit monthly reports directly to supervisors to escalate concerns without fear of reprisal, according to the vice chair's announcement.