Banks, experts call for accountability above all else in Fed’s SVB report

By  Kyle Campbell

When Michael Barr delivers his report on the supervision of Silicon Valley Bank this Friday, banks, analysts, academics and other observers will all be looking for one thing: a full acknowledgement of the Federal Reserve’s own failures. The Fed’s vice chair for supervision is set to share findings from his six-week review of the Santa Clara, California-based bank’s failure last month. Barr has said his report would be “thorough and transparent” and give an “unflinching look” at the central bank’s regulatory and supervisory approach to the bank….  Because so much of this information is already in the public record, Barr’s report must go beyond a simple blow-by-blow account of this individual bank failure, said Karen Petrou, managing partner of Federal Financial Analytics. Instead, she would like to see evidence that the Fed has had some type of “structural epiphany” about its approach to supervision. “I’m going to be looking to ensure that individuals senior enough to be accountable for this problem are perhaps not named, but made clear, and that significant remediation is described that goes beyond this specific case,” Petrou said. “The key issue to me is: Is there any indication that the Fed has institutionally truly understood that it has to change? Because this is not the first time it’s happened.” Petrou, who has served as an expert witness for litigation tied to past bank failures, said bank regulators are almost always aware of weaknesses within banks well before they reach their critical moment. Time and again, she said, supervisors have failed to translate those findings into effective remediation. Petrou said she hopes Barr’s report will focus on this disconnect in a way that emphasizes the cultural shortcomings of the agency, rather than pinning blame on individual supervisors. “Supervisors are very low-level staffers in an organization in which people get ahead by being monetary policy or regulatory experts, and that’s especially true in Washington,” she said. “Supervision has always been the weak sister in the Fed’s institutional culture, so it’s unfair to expect a junior staffer to be a whistleblower unless they’re operating in a culture in which they’re going to be heard and rewarded for speaking up.”