The internal watchdog of the Federal Reserve has condemned Silicon Valley Bank’s (SVB) management for its part in the bank’s failure, as well as federal bank supervision officials. This earlier this week occurrence is regarded as the third-largest bank failure in US history.
The US Treasury responded to the issue right away by guaranteeing all SVB depositors, and the Federal Reserve launched an emergency term funding facility. These steps were taken to reduce any dangers of financial instability that might have resulted from the bank’s abrupt failure.
SVB’s market valuation was adjusted to 3700M USD, according to InvestingPro statistics, showing a sizable scope of operations. The bank’s high 52.94 P/E ratio indicates a high earnings multiple, which is something InvestingPro Tips also emphasizes. Another point made by InvestingPro Tips is that while the bank’s revenue growth was recorded at 14.41% LTM2023.Q2, it witnessed a reduction in quarterly revenue growth of -6.95% in FY2023.Q2, indicating a recent slowdown in revenue growth.
The Federal Reserve’s internal watchdog revealed a failure on the part of both SVB management and Fed bank supervision authorities to modify their inspection strategy in response to SVB’s expansion and the growing complexity of its investment securities portfolio. Due to this error, there was a run on the bank’s deposits, which ultimately resulted in its demise.
Fed Vice Chair of Supervision Michael Barr described the incident as a “textbook case of mismanagement,” blaming Randal Quarles’s administration’s “shift in culture” for the lack of oversight. Barr’s remark highlights the apparent lack of rigorous oversight that substantially influenced this banking disaster.
The management of SVB has been actively repurchasing shares and has more cash on hand than debt, according to InvestingPro Tips. However, the bank’s stock had significantly declined over the previous six months, with a total return of -30.61%, and it was trading close to its 52-week low with a price that was 58.89% of its 52-week high.