Silicon Valley Bank regulators failed to assess collapsed bank’s risks: report

SANTA CLARA — Silicon Valley Bank regulators failed to identify and assess fast-expanding risks that ultimately doomed the collapsed financial high-flyer that catered to the tech sector, a new state report says.

State regulators exhibited a sluggish and ineffective response to the hazards that arose from the failed bank’s dramatic growth, uninsured deposits and other problems, according to the report released by the state Financial Protection & Innovation Department — a report that was a self-assessment of the state agency’s missteps.

The state financial agency’s report identified several deficiencies on the part of California bank examiners.

Among the key findings and recommendations arising from the Silicon Valley Bank failure:

• The bank failed to address problems and state regulators didn’t push hard enough to address them
• The state failed to assess risks unleashed by the bank’s rapid growth
• State financial officials should better scrutinize banks with high levels of uninsured deposits
• Social media chatter and digital banking technology hastened the meltdown of Silicon Valley Bank, which in regulator shorthand is also known as SVB.

“Silicon Valley Bank was slow to remediate regulator-identified deficiencies,” the state finance agency said in its report. “Regulators did not take adequate steps to ensure SVB resolved problems as fast as possible.”

The bank’s explosive growth apparently didn’t appear on the radar screens of the regulators in time.

“SVB’s unusually rapid growth was not sufficiently accounted for in risk assessments,” the state report determined.

The bank’s deposits were $94.7 billion at the end of 2020 and $175.3 billion at the end of 2021. Just three months later at the end of March 2022, bank deposits peaked at $182.9 billion. At the end of 2022, deposits totaled $161.4 billion.

The run on the bank was so catastrophic that its deposits totaled just $56 billion at the time of its purchase on March 27 by First Citizens Bank & Trust Co.

The state financial agency acknowledged that it must act more effectively to deploy its staff in these fast-growth circumstances.

“DFPI(Financial Protection and Innovation Department) will review its internal staffing processes to ensure that additional staff members are assigned in a timely manner, commensurate with accelerated growth or increased risk profile for an institution, for banks with assets of more than $50 billion,” the state finance agency said in the report.

The state agency also determined that Silicon Valley Bank’s high level of uninsured deposits contributed to the financial calamity that engulfed the bank and its depositors in March 2023.

“DFPI will increase its focus on banks’ uninsured deposit levels, in addition to continuing to monitor key indicators such as banks’ concentration of uninsured deposits by industry,” the state agency said in the report. “Banks with over $50 billion in total assets will be subject to heightened examination requirements regarding uninsured deposits.”

And while Silicon Valley Bank presented itself as a tech and finance maven at ease with the go-go landscape of Silicon Valley, the real-time banking services and social media platforms that were born in the region’s tech hubs played a role in the bank’s demise.