California’s bank regulator said Monday that it was too slow to spot growing risks at the Silicon Valley bank and did not act to force the bank to fix its problems.
A report by the California Department of Financial Protection and Innovation echoed similar findings in a Federal Reserve report looking into its supervision of the Silicon Valley bank. The Fed was highly critical of its own role in the bank’s failure, saying that its supervisors were too slow or unwilling to pressure the bank’s management to resolve the issues.
The Silicon Valley bank collapsed and failed on March 10, after its depositors rushed to pull billions of dollars out of the bank in the 21st century bank run. The aftershocks of the bank failure shook the financial system, causing the failures of Signature Bank and First Republic Bank, and putting many other banks under severe financial strain.
California has been the epicenter of banking turmoil. San Francisco-based First Republic was shut down by regulators and sold to JPMorgan Chase last week. Financial markets were rocked last week after the failure of First Republic, the PacWest bank based in Los Angeles.
In its report, DFPI said its employees were too slow to notice how quickly First Republic and Silicon Valley Bank expanded during the COVID-19 pandemic, accumulating billions of dollars. The employees also failed to realize the risks that came with the banks grew very quickly.
The agency also said its employees did not recognize the potential risks of the large amounts of uninsured deposits at the Silicon Valley bank and what it could mean if those wealthy depositors suddenly became concerned about the bank’s financial health.
The DFPI said it planned to increase staffing to oversee banks with more than $50 billion in assets and those that may have a high concentration of deposits in a particular sector, such as Silicon Valley Bank had in the technology industry.
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