New review says Fed supervisors should have caught Silicon Valley Bank

An independent review commissioned by Michelle Bowman, the Federal Reserve’s vice chair for supervision, found that Fed staff either knew or should have known about Silicon Valley Bank’s vulnerabilities as early as 2022^1,2. The report was produced by Starling Trust Sciences⁴. It found that a culture of risk aversion hindered oversight of the bank³, and that the Fed had been too timid in tackling the risks it saw⁵.

Bowman said the review found that regulatory tailoring played no role in the failure². She also rejected the account that social media drove the run, calling it a false narrative⁶. The findings contradict parts of the Fed’s own prior post-mortem³. The bank had invested heavily in longer-term securities whose market value fell as interest rates rose¹⁰.

Why it matters to investors

The report shifts the official explanation of the failure from the rules to the people enforcing them, which is the argument Bowman needs to rewrite bank supervision. She said the review supports her push to reform the Fed’s supervision policies⁸. Examination teams will now report monthly to Fed and regional Reserve Bank supervision heads⁹.

It arrived with a rulebook attached. Bowman outlined three potential changes to stress-test calculations alongside the review¹¹. Stress-test calibration sets how much capital the largest banks must hold, and therefore what they can return to shareholders, so the supervisory post-mortem and the capital framework are moving together rather than separately^8,11.

What to watch

The framing is contested. The Wall Street Journal described the report as commissioned by Trump ally Michelle Bowman and as blaming bank-supervision staff in the Biden era⁷. Critics including Senator Elizabeth Warren disputed the report’s conclusions⁸. Bowman, who oversees banking supervision as the Fed’s vice chair for supervision, presented it as a commission of her own rather than an institutional verdict⁵. The dispute matters because the conclusion that examiners rather than rules were at fault points policy in the opposite direction from the tightening that followed the failure^2,3.

Three markers will show whether this is process or policy. Whether the monthly escalation line to supervision heads changes examiner behaviour⁹; whether the stress-test changes Bowman sketched are adopted as outlined¹¹; and whether the finding that tailoring had no role in the failure is used to justify further tailoring of the rules for large regional banks^2,8.