The Federal Reserve’s inspector general has begun a probe into Silicon Valley Bank’s collapse.
A spokesperson for the Office of Inspector General (OIG) told PYMNTS Wednesday (March 29) that the office had begun an independent investigation into the failure of Silicon Valley Bank.
That inquiry began on March 14, four days after the bank folded, and “will assess both the Board’s and the Federal Reserve Bank of San Francisco’s supervision of the institution and make recommendations, as appropriate,” the spokesperson said.
The OIG plans to complete its work within six months. This review is separate from one being conducted by Michael Barr, vice chair of the board.
The news comes as Congress undertakes its second day of hearings on the downfall of SVB and Signature Bank earlier this month.
Testifying Tuesday (March 28), Barr and Federal Deposit Insurance Corp. (FDIC) Chairman Martin Gruenberg discussed possible regulations to protect the banking system, such as new liquidity rules for banks.
The Fed will introduce improvements to its stress tests of banks and propose a long-term debt requirement for more big banks.
As PYMNTS noted, Democrats who questioned the regulators during the hearing proposed tougher banking rules and blamed the recent bank failures on a softening of regulations during the Trump administration.
Republicans, on the other hand, combated the idea of additional rules. They said the bank failures are proof that regulators had not enforced the rules already on the books and blamed the troubles in the sector on the steep interest rate hikes seen during the Biden administration.
Lawmakers on both sides of the aisle criticized regulators for failing to prevent one of the largest bank failures in U.S. history.
“The Fed knew SVB was poorly managed and had big risks and had a higher probability of failure if some shock occurred, yet nothing was done until the bank failed,” said Sen. Sherrod Brown, an Ohio Democrat. “How many other banks are in a similar situation?”
And Sen. Steven Daines (R-Montana) called for regulators to lose their jobs over the failure in oversight, calling it “ridiculous” that Barr would not say that if agency employees failed to do their jobs, he’d be willing to recommend their dismissal.
One idea that has bipartisan support is a proposal to create an independent inspector general to oversee the Federal Reserve.
Introduced last week by Sens. Rick Scott and Elizabeth Warren, the bill would require an inspector general appointed by the president and confirmed by the Senate.
“After the Federal Reserve’s failure to properly identify and prevent the shocking failures of Silicon Valley Bank and Signature Bank, it’s clear we can’t wait any longer for big change at the Fed,” Scott said in a news release.
“It’s outrageous that the Federal Reserve, the world’s largest and most powerful central bank, does not have a truly independent inspector general to investigate it — an independent authority to fight for the transparency and accountability our citizens need.”
In response to the proposed bill, the OIG spokesperson offered this statement to PYMNTS:
“Consistent with the IG Act, we have the same independence and authorities afforded to all Inspectors General to audit and investigate the Board. We have and will continue to provide independent and robust oversight over both the Board and the CFPB.”