In a statement made by the California bank regulators on Monday, the agency said that they were very slow to detect the risks that were growing at the Silicon Valley Bank and that they failed in making the bank act accordingly to put an end to the growing problem and to fix it accordingly.
The California Department of Financial Protection also cited a similar finding in a Federal Reserve report while analyzing their own role in the supervision of the Silicon Valley Bank.
The Fed has also made self-criticism against its role in the overall supervision of the bank.
Through different reports and statements, the agency has blamed itself for being too slow in detecting the growing problems at the bank and also in failing to make the bank realize the mistake or pressing the management of the bank and convincing them to take a better look into the already brewing problem.
The Silicon Valley Bank collapsed on March 10 which was one of the biggest collapses that the country’s financial sector has seen in recent times.
Even though the bank was already under different problems that had been growing for a while, what really triggered the fall of the bank was the sudden massive withdrawal of the depositors from the bank.
The collapse of the Silicon Valley Bank eventually paved the way for the failure of other big banks like Signature Bank and most recently, the First Republican Bank.
Along with the fall of other major banks, the collapse of Silicon Valley Bank had a devastating effect on the banking sector and the economic state of the coin try. The collapse has also affected a large number of smaller banks and has put them under severe financial strain.
Following the fall of some of the biggest banks in the country, the nation is currently in a difficult situation financially, and different organizations and agencies are trying their best to contain the turmoil in the banking sector that has the potential to affect the entire economic stability of the country.
The epicenter of the ongoing turmoil in the finance and banking sector can be said to be California. Most recently, the California-based First Republic Bank was also affected by the effects of the collapse of both Silicon Valley Bank and Signature Bank.
The First Republic Bank was taken over by the regulator and was sold to JP Morgan & Chase in order to help the bank to maintain its working status and to prevent another collapse in the field.
The fall of another major bank in the nation at this time could mean a severe blow to the already disturbed financial stability of the country. The fall and the subsequent events that followed at First Republic Bank have also seemingly affected the Los Angeles-based PaWest Bank too.
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Following the collapse of the Silicon Valley bank and the Signature Bank, in a statement made by the respective authority of the bank, they stated that the major reason for the unexpected collapse of the bank was that they tried to get too big too quickly.
The drive to grow quickly without looking out for the possible negative effects of the growth was the major reason that led to the failure of these banks.
In their report published by the Department of Financial Protection and Innovation, the agency admits that they were very slow to notice the rapid growth that the banks had during the COVID-19 phase.
The bank took on billions as deposits from their depositors, which accounted for their sudden and massive growth. The agency insists that their staff were very slow to recognize the fact that just like the success that follows, the risks associated with trying to get too big too quickly were massive too.
Another major event that went unrecognized by the authorities was regarding the large number of uninsured deposits made by wealthy depositors at the bank.
The authorities were not aware of the potential risk of the large number of uninsured deposits that were made in the bank and also of the severity of the panic that would arise if the wealthy depositors suddenly got worried about the security of their deposits and the financial stability of the bank.
Following the mistakes the agency made in supervising the banks and the further effect of their fault, the Department of Financial Protection and Innovation is planning to introduce new implementations in order to avoid any kind of similar situation in the future.
As a result, the agency is currently planning to increase the number of their staff who will have the duty of closely watching banks that have $50 billion in assets or more and also the banks that have a higher concentration of deposits in any one particular sector.
The Silicon Valley bank had a similar case, where the bank had a higher concentration of deposits in the technology industry.
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