Silicon Valley Bank and federal regulators alike let poor management slide for several years — leading to the largest banking failure since 2008.

SVB lacked board effectiveness, risk management and internal audits within its operations, and had 31 outstanding supervisory warnings when the bank collapsed in March. Similarly, the Fed failed to follow up on warnings issued to the bank by supervisors to ensure problems were rectified.

This morning, Vice Chair for Supervision at The Federal Reserve Michael Barr released a review of the supervision and regulation of the bank.

“This review represents a first step in that process — a self-assessment that takes an unflinching look at the conditions that led to the bank’s failure, including the role of Federal Reserve supervision and regulation,” Barr said in a release.

Management gaps

Barr recognized lack of management, specifically risk management, as an ongoing weakness for the Santa Clara-based SVB — a red flag that the Fed had turned a blind eye to since 2021, according to the review. For example, the bank had issues securing and retaining a chief risk officer (CRO), which could have led to a violation.

“In consultation with board staff, supervisors decided not to issue the violation since the firm was actively searching for a CRO with the appropriate skills and experience,” according to the review.

The lack of a CRO also could have resulted in a downgraded rating of the bank’s risk management and management supervision, according to the review. “Under the applicable ratings definition, the ratings for risk management and management could have been downgraded to a ‘less-than-satisfactory-3. ’Instead, supervisors maintained the ‘satisfactory-2’ rating given the strong financial performance of the firm at the time and the lack of realized risk outcomes from the risk-management weaknesses, a backward-looking perspective.”

Gaps in management that were not addressed by the bank, or flagged by the Fed, led to “a struggle in addressing the firm’s technology weaknesses” among liquidity and interest rate risk, according to the review. Additionally, the lack of a CRO removed a layer of internal oversight that hindered a “safe and sound operation of the firm.”

“The review of these materials provides indications that management was only addressing issues in response to supervisory findings rather than being proactively focused on safe and sound operation of the firm,” according to the review.