SVB failed from mismanagement, not loose regulations – FDIC official

By Hannah Lang

WASHINGTON (Reuters) -Management failures, not loose regulations, prompted Silicon Valley Bank’s sudden failure last month, a top Federal Deposit Insurance Corporation (FDIC) official said on Wednesday.

“Mismanagement of interest rate risk was at the core of SVB’s problem,” FDIC Vice Chairman Travis Hill said in his first public remarks since being sworn into the role in January. “There are numerous potential ways to encourage banks to better manage interest rate risk. We should evaluate any potential policy changes thoughtfully.”

Regulators had trouble finding a quick buyer for SVB last month because the lender was unable to provide key data swiftly enough for potential bidders to assess the business, Hill said. 

The twin failures of SVB and Signature Bank in March have led to calls for reform from Democratic lawmakers like Sen. Elizabeth Warren and government watchdog groups. Key regulators appointed by U.S. President Joe Biden have vowed to review their rules and procedures after the failures while insisting the overall system remains sound.

Regulators should closely review what went wrong and if changes to the regulatory framework might be appropriate, Hill said on Wednesday. But he cautioned against crafting new overly broad rules instead of fixing the existing regulatory framework.

“I don’t think this is an issue of mid-sized banks not being subjected to rules that large banks are subject to. If anything, it’s a question of, are we approaching things like interest rate risk the right way?” he said.

The FDIC should remain open to bidders for any potential failed banks in the future and needs to act “with urgency and initiative to solicit bids and make a deal happen,” he said.

The regulator should also consider requiring more “innovative” financial reporting, he said. Firms also need to be able to quickly hand over a list of key employees to regulators once they are seized by the government, he said.

Hill, a Republican, was confirmed by the Senate in December as the FDIC’s vice chairman on the five-person board.

Democratic Senator Elizabeth Warren and others have also argued that a 2018 bank deregulation law is to blame for the bank failures. That law, backed by Republicans and some moderate Democrats, relaxed the strictest oversight for companies with $100 billion to $250 billion in assets, which included SVB and Signature.

Hill rejected such criticism on Wednesday. “The reasons for SVB’s failure are quite straightforward and easy to explain, and those rule changes had nothing to do with them,” he said.

The FDIC is also set to propose next month how to make the U.S. banking sector pay for an estimated $23 billion hole in its insurance fund from the collapse of SVB and Signature Bank.

(Reporting by Hannah Lang; Writing by Chris Prentice; Editing by Lananh Nguyen, Sharon Singleton and Richard Chang)