Before Collapse of Silicon Valley Bank, the Fed Spotted Big Problems

But the bank did not fix its vulnerabilities. By July 2022, Silicon Valley Bank was in a full supervisory review -- getting a more careful look -- and was ultimately rated deficient for governance and controls. It was placed under a set of restrictions that prevented it from growing through acquisitions.

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It became clear to the Fed that the firm was using bad models to determine how its business would fare as the central bank raised rates: Its leaders were assuming that higher interest revenue would substantially help their financial situation as rates went up, but that was out of step with reality.

By early 2023, Silicon Valley Bank was in what the Fed calls a "horizontal review," an assessment meant to gauge the strength of risk management. That checkup identified additional deficiencies -- but at that point, the bank's days were numbered. In early March, it faced a run and failed within a matter of days.

Major questions have been raised about why regulators failed to spot problems and take action early enough to prevent Silicon Valley Bank's March 10 downfall.

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The picture that is emerging is one of a bank whose leaders failed to plan for a realistic future and neglected looming financial and operational problems, even as they were raised by Fed supervisors. For instance, according to a person familiar with the matter, executives at the firm were told of cybersecurity problems both by internal employees and by the Fed -- but ignored the concerns.

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