The Federal Reserve has bolstered its bank supervision program since last year’s Silicon Valley Bank failure, with large regional banks receiving heightened scrutiny, Fed Vice Chairman for Supervision Michael Barr said today. Speaking at a banking conference in New York City, Barr pointed to the Fed’s internal investigation of SVB, which laid much of the blame for the bank’s failure on its management, but also faulted the Fed supervisors for not identifying issues quickly enough and being too slow to act when they did find problems.
“Since SVB’s failure, we have focused on improving the speed, force and agility of supervision, as appropriate to the situation,” Barr said. “This means that supervisors take timely action as risks build up; that supervisors deploy supervisory tools and escalation effectively; and that supervisors are able to take account of changes in market, economic and financial conditions, both to reprioritize examination activity as well as to draw supervisory conclusions based on new and different patterns of risks.”
Supervision should intensify at the right pace as a bank grows in size and complexity, Barr said. He noted that much of SVB’s risk buildup occurred while it was supervised within the regional bank program, which includes banks between $10 billion and $100 billion in size. “Based on this experience, for large and more complex regional banking organizations, including firms that are growing rapidly, we are assessing such a firm’s condition, strategy and risk management more frequently, and deepening our supervisory interactions the firm,” he said. “At the same time, smaller and less complex firms will see little difference from the current state.”
Barr also said that Fed supervisors have been “closely focused” on banks’ commercial real estate lending. Supervisors are asking banks how they are measuring their risk and monitoring that risk, what steps they have taken to mitigate the risk of losses on CRE loans, how they are reporting their risk to their directors and senior management, and whether they are provisioning appropriately and have sufficient capital to buffer against potential future CRE loan losses.
