Questions remain around why SVB was allowed to double in size after the Fed raised concerns about the bank’s risk management systems….reports Asian Lite News
The US Federal Reserve began sounding the alarm about Silicon Valley Bank’s (SVB’s) risk management arm starting at least four years ago in 2019, according to a report.
In January 2019, the Fed issued a warning known as a ‘Matter Requiring Attention’, a citation a step-down from an enforcement action, about SVB’s risk-management systems, The Wall Street Journal reported, citing documents from a presentation circulated last year to employees of SVB’s venture-capital arm.
The presentation reportedly said the Fed again warned SVB in 2020 that its system to control risk did not meet the expectations for a large financial institution, or a bank holding company with more than $100 billion in assets. The bank at that time was in a period of rapid growth as deposits flooded in at the early onset of the Covid-19 pandemic, Fox Business reported.
According to the Journal, the presentation notes that SVB’s average level of interest-earning assets grew 76% in the first quarter of 2021, compared with the same period one year earlier.
Federal Deposit Insurance Corp. data show SVB’s assets grew to $114 billon at the end of 2020, up from the bank’s $70 billion in 2019 � the year the Federal Reserve first raised eyebrows.
SVB had nearly twice as much in assets from 2020 to the end of 2021, clocking in at about $209 billion, Fox Business reported.
Questions remain around why SVB was allowed to double in size after the Fed raised concerns about the bank’s risk management systems. A Federal Reserve review of its oversight of SVB is due by May.
First Republic continues tanking
Shares in the troubled First Republic Bank crashed more than 46 per cent after reports the San Francisco-based bank may need to raise more funds despite a $ 30 billion rescue last week.
As the growing banking crisis spread into a new week, the credit rating of the regional bank was downgraded deeper into junk status by S&P Global, the Guardian reported.
The agency said that the bank, which caters to wealthy clients, probably faced “high liquidity stress with substantial outflows”.
US officials are studying how to temporarily expand the protection offered to banking customers by Federal Deposit Insurance Corp (FDIC) to include all deposits, going beyond the current $250,000 cap, Bloomberg reported.
Like the collapsed Silicon Valley Bank (SVB), a large proportion of First Republic’s customers hold more than the $250,000 amount guaranteed by federal insurance.
However, the move may face political roadblocks.
Hardline Republicans in the House of Representatives on Monday vowed to oppose any cover extension, the Guardian reported.
The Republican House Freedom Caucus said in a statement: “Any universal guarantee on all bank deposits, whether implicit or explicit, enshrines a dangerous precedent that simply encourages future irresponsible behavior to be paid for by those not involved who followed the rules.”
First Republic’s woes follow the collapse of SVB and New York-based Signature. Over the weekend Credit Suisse became the largest institution so far to be embroiled in the upheaval when the Swiss government forced the troubled bank into a cut-price takeover by rival UBS.
First Republic has struggled to reassure depositors that it will not suffer the same fate as SVB and Signature.
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