The U.S. Federal Reserve’s bank-supervision chief called for a sweeping reevaluation of how the institution oversees financial firms following the failure of Silicon Valley Bank, which he blamed on the company’s weak risk management and supervisory foot-dragging by the Fed.

The central bank will revisit the range of rules that apply to firms with more than US$100 billion in assets, including stress testing and liquidity requirements, Michael Barr, the Fed’s vice chair for supervision, said in a letter accompanying a lengthy report released in Washington on Friday. SVB’s failure demonstrated the need for stronger standards applied to a broader set of firms, Barr said.

He also suggested the regulator could require additional capital or liquidity, or limit share buybacks, dividend payments or executive compensation, at firms with inadequate capital planning and risk management. 

“Following SVB’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” Barr said. “This report represents the first step in that process.”

The 102-page report provides the clearest picture yet of how rapidly the situation at SVB deteriorated and the various factors behind its quick collapse. It also shows regulators were aware of most of the bank’s lurking issues, but by the time they took steps toward decisive action, it was too late.

At the same time, the report blames the approach under Barr’s predecessor Randal Quarles, who served as Fed vice chair for supervision from 2017 to 2021 and led the Fed’s effort to “tailor” regulations for mid-size and regional lenders, following 2018 legislation that eased rules for those firms.


The document represents one of the most detailed looks to date at how the Fed supervised an individual bank, a process that is often shrouded in secrecy and confidentiality. The Fed’s Board “has determined that releasing this information is in the best interest of the public,” the report said.

Barr said the Fed would reevaluate how it supervises and regulates a bank’s management of interest-rate liquidity risks, and said it should consider applying standardized liquidity rules to a broader set of firms. He also said the Fed should require a broader set of firms to take into account unrealized gains or losses on available-for-sale securities, “so that a firm’s capital requirements are better aligned with its financial positions and risk.”

The Fed will seek comment on such proposals soon, Barr said, though he noted that any such rules would not take effect for several years. Other possible steps will follow later.

Barr also called for changes to improve “the speed, force and agility of supervision,” including more continuity in how the Fed oversees banks of different sizes, so firms will be ready to quickly comply with heightened supervisory standards as they grow, and stronger penalties for banks that fall short of supervisory standards.

For example, he suggested that the Fed could more quickly require banks to raise capital if deficiencies are found.

“Higher capital or liquidity requirements can serve as an important safeguard until risk controls improve, and they can focus management’s attention on the most critical issues,” he said. “As a further example, limits on capital distributions or incentive compensation could be appropriate and effective in some cases.”

In a briefing with reporters, a senior Fed official said many of the changes would not require legislative approval.


Still, the recommendations are likely to face fierce resistance from Republicans in Congress, as well as the banking industry. Representative Patrick McHenry, the GOP chairman of the House Financial Services Committee, called the report “self-serving” in a statement Friday. 

“While there are areas identified by Vice Chair Barr on which we agree — including enhancing attention to liquidity issues, especially when a firm is rapidly growing — the bulk of the report appears to be a justification of Democrats’ long-held priorities,” including calls for more regulation, he said.

The Government Accountability Office also released a report Friday that was more critical of foot-dragging on SVB, saying the San Francisco Fed’s actions “lacked urgency.”

In a statement released with the report, Chair Jerome Powell said he agreed with and supported Barr’s recommendations.

The review is one of the first detailed accounting of how the Fed let a bank expand its balance sheet by $140 billion in just two years with deficient risk controls that ultimately led to its demise. When it collapsed on March 10, SVB had 31 unaddressed “safe and soundness supervisory warnings,” triple the average number for peer banks, according to the report.

“Its senior leadership failed to manage basic interest-rate and liquidity risk,” Barr said in the letter. “Federal Reserve supervisors failed to take forceful enough action.”

SVB’s failure was the largest in the U.S. in more than decade, with about $209 billion in assets at the end of last year. Unlike prior implosions in which banks suffered from deteriorating loan quality, SVB suffered an interest-rate shock in its bond portfolio that led to a destabilizing deposit run.


The failure of SVB and Signature Bank caused regulators to invoke a measure that allowed them to insure all depositors, both big and small, to prevent what they said might have been a wide-scale run on the banking system. In addition, the Fed launched an emergency term lending facility for banks.

The report indicated management expected to lose over $100 billion in deposits on March 10, the day the bank was shuttered, on top of the over $40 billion that flooded out of the bank on March 9.

The FDIC, the primary regulator for Signature, will release a separate review Friday on its oversight of the bank. 

In a November 2022 letter detailing key financial ratings provided by regulators, California’s financial regulator and the San Francisco Fed told the bank that its interest-rate-risk simulations were “not reliable and require improvements.” The bank’s revenue forecasts and its internal interest-rate-risk modeling were inconsistent, “calling into question the reliability of IRR modeling and the effectiveness of risk management practices,” the regulators wrote.

The warning from regulators ultimately proved prescient, with the mismatch between the duration of the bank’s assets and its liabilities playing a key role in its demise.


The report, which was undertaken by Board staff soon after the bank’s failure by order of Powell and Barr, took direct aim at Quarles, though it didn’t name him directly.

“Under the direction of the vice chair for supervision, supervisory practices shifted,” the report said. “Staff repeatedly mentioned changes in expectations and practices, including pressure to reduce burden on firms, meet a higher burden of proof for a supervisory conclusion, and demonstrate due process when considering supervisory actions.”

The report also cited “a shift in culture and expectations from internal discussions and observed behavior that changed how supervision was executed,” which led to slower action or none at all in some cases, as well as an apparent erosion of supervisory resources.

From 2016 to 2022, the report said, banking sector assets grew 37 per cent, while Fed supervision headcount declined by 3 per cent. Supervisory coverage of SVB declined when it was still in the regional bank portfolio and under the San Francisco Fed, the report said. 

After runs at the two lenders worsened, the FDIC took over SVB and Signature Bank. The crisis cost the FDIC’s deposit insurance fund about $23 billion.

With assistance from Katanga Johnson and Max Reyes.