BANK REGULATION
Preliminary Review of
Agency Actions
Related to March
2023 Bank Failures
Report to the Committee on Financial
Services, House of Representatives
April 2023
GAO-23-106736
United States Government Accountability Office
United States Government Accountability Office
Highlights of GAO-23-106736, a report to the
Committee on Financial Services, House of
Representatives
April 2023
BANK REGULATION
Preliminary Review of
Agency Actions Related to
March 2023 Bank Failures
What GAO Found
Risky business strategies along with weak liquidity and risk management
contributed to the recent failures of Silicon Valley Bank and Signature Bank. In
both banks, rapid growth was an indicator of risk. In 2019–2021, the total assets
of Silicon Valley Bank and Signature Bank grew by 198 percent and 134 percent
respectively—far exceeding growth for a group of 19 peer banks (33 percent
growth in median total assets). To support their rapid growth, the two banks
relied on uninsured deposits, which can be an unstable source of funding
because customers with uninsured deposits may be more likely to withdraw their
funds during times of stress. Additionally, Silicon Valley Bank was affected by
rising interest rates and Signature Bank had exposure to the digital assets
industry. The banks failed to adequately manage the risks from their deposits.
In the 5 years prior to 2023, regulators identified concerns with Silicon Valley
Bank and Signature Bank, but both banks were slow to mitigate the problems the
regulators identified and regulators did not escalate supervisory actions in time to
prevent the failures.
• The Federal Reserve Bank of San Francisco rated Silicon Valley Bank as
satisfactory up until the bank received its first large bank rating in 2022. The
Reserve Bank downgraded Silicon Valley Bank in June 2022 and began
working on an enforcement action in August 2022. However, it did not finalize
the action before the bank failed.
• The Federal Deposit Insurance Corporation (FDIC) took multiple actions to
address supervisory concerns related to Signature Bank’s liquidity and
management, but did not substantially downgrade the bank until the day
before it failed.
GAO has longstanding concerns with escalation of supervisory concerns, having
recommended in 2011 that regulators consider adding noncapital triggers to their
framework for prompt corrective action (to help give more advanced warning of
deteriorating conditions). The regulators considered noncapital triggers, but have
not added them to the framework, thus missing a potential opportunity to take
early action to address deteriorating conditions at banks.
On March 12, 2023, the Secretary of the Treasury approved the systemic risk
exception, which authorized FDIC to guarantee insured and uninsured deposits
of the two banks. FDIC and the Federal Reserve Board assessed that not
guaranteeing the uninsured deposits likely would have resulted in more bank
runs and negatively affected the broader economy. The Secretary of the
Treasury concurred with this assessment and made the determinations.
After determining that additional banks might need support and to minimize
financial contagion, the Federal Reserve created the Bank Term Funding
Program on March 12, 2023. The program provides eligible banks with additional
liquidity by allowing the 12 Reserve Banks to provide loans of up to 1 year.
Federal Reserve staff documented how the program met the requirements for an
emergency lending facility under section 13(3) of the Federal Reserve Act, and
Treasury approved the program. As of April 19, 2023, outstanding advances
under the program were approximately $74 billion.
View GAO-23-106736. For more information,
contact
Michael E. Clements at (202) 512-
8678
Why GAO Did This Study
Silicon Valley Bank and Signature
Bank failed
during March 10–
12, 2023.
At the time of closure, they were
amon
g the 30 largest U.S. banks. The
failures
raised questions about bank
management
, federal supervision, and
the events leading to
regulators’
decisions to use emergency
authorities.
T
his report examines (1) bank-specific
factors that contributed to the failures
,
(2)
supervisory actions regulators took
leading up to the failures
, (3) the basis
for
the systemic risk determinations
Treasury made
, and (4) factors the
Federal Reserve and Tr
easury
considered to establish and
provide
credit protection for
the Bank Term
Funding Program
and the use of the
program to date.
GAO reviewed relevant laws and
regulations, agency testimonies,
and
prior
GAO reports. GAO also analyzed
regulatory financial
data from 2018–
2022
for the two failed banks and a
peer group of banks. GAO reviewed
agency documents
(including
examination records
, communications,
and analyses
on the systemic risk
exception and the Bank Term Funding
Program
). GAO also interviewed
Trea
sury, FDIC, Federal Reserve, and
Federal Reserve Bank of San
Francisco
staff. GAO conducted this
audit
from March to April 2023. GAO
will further explore these issues in
upcoming work
and may report
additional
findings and relevant
information.
Page i GAO-23-106736 2023 Failed Banks
Letter 1
Background 4
Risky Business Strategies along with Weak Liquidity and Risk
Management Contributed to the Recent Bank Failures 11
Regulators Did Not Escalate Supervisory Actions in Time to
Mitigate Key Risks Associated with the Bank Failures 17
Treasury and Regulators Identified the Risk of Contagion to
Support the Systemic Risk Exception Determinations 28
Federal Reserve Considered Economic and Statutory Factors in
Establishing the Bank Term Funding Program 32
Agency Comments 35
Appendix I Status of Resolution Plans for Silicon Valley Bank and Signature
Bank 36
Appendix II Timeline of Key FDIC Actions Associated with Silicon Valley
Bank and Signature Bank Receivership 38
Appendix III Timeline of Key Actions to Invoke Systemic Risk Exception for
Silicon Valley Bank and Signature Bank 39
Appendix IV GAO Contact and Staff Acknowledgments 40
Tables
Table 1: Types of Supervisory Concerns Issued by Federal
Banking Regulators 6
Table 2: Uniform Financial Institutions Rating System (CAMELS)
Ratings for Silicon Valley Bank, 2018–2023 17
Table 3: Federal Reserve Supervisory Findings Issued to Silicon
Valley Bank, 2018–2023 18
Table 4: Large Financial Institution Ratings for Silicon Valley Bank
Financial Group, 2022–2023 21
Table 5: Uniform Financial Institutions Rating System (CAMELS)
Ratings for Signature Bank, 2018–2023 23
Contents
Page ii GAO-23-106736 2023 Failed Banks
Table 6: FDIC Supervisory Actions Issued to Signature Bank,
2018–2023 25
Table 7: Key Actions Associated with Invoking Systemic Risk
Exception for Silicon Valley Bank and Signature Bank,
March 9–13, 2023 28
Table 8: Key Actions Associated with FDIC Receivership of Silicon
Valley Bank and Signature Bank, March 9–13, 2023 38
Table 9: Key Actions Associated with Invoking Systemic Risk
Exception for Silicon Valley Bank and Signature Bank,
March 9–13, 2023 39
Figures
Figure 1: Overview of Steps Regulators May Take to Invoke
Systemic Risk Exception 8
Figure 2: Total Assets of Silicon Valley Bank and Signature Bank
and Median Total Assets for Peers, 2018–2022 12
Figure 3: Uninsured Deposits to Total Assets for Silicon Valley
Bank and Signature Bank and Median Uninsured
Deposits to Total Assets for Peers, 2018–2022 14
Page iii GAO-23-106736 2023 Failed Banks
Abbreviations
BTFP Bank Term Funding Program
CAMELS capital adequacy, asset quality,
management, earnings, liquidity, and
sensitivity to market risk
FDI Act Federal Deposit Insurance Act
FDIC Federal Deposit Insurance Corporation
FDICIA Federal Deposit Insurance Corporation
Improvement Act of 1991
FRBSF Federal Reserve Bank of San Francisco
Federal Reserve Board of Governors of the Federal Reserve
System
IDI insured depository institution
MRA matters requiring attention
MRIA matters requiring immediate attention
PCA prompt corrective action
SVB Silicon Valley Bank
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Page 1 GAO-23-106736 2023 Failed Banks
441 G St. N.W.
Washington, DC 20548
April 28, 2023
The Honorable Patrick McHenry
Chairman
The Honorable Maxine Waters
Ranking Member
Committee on Financial Services
House of Representatives
Between March 10 and March 12, 2023, state banking supervisors closed
Silicon Valley Bank (SVB) and Signature Bank and named the Federal
Deposit Insurance Corporation (FDIC) as receiver for both banks. At the
time of closure, SVB was the 16th largest U.S. bank and Signature Bank
the 29th largest. Both banks had significantly large proportions of
uninsured deposits.
On March 12th, the Secretary of the Treasury—based on unanimous
recommendations of the FDIC Board of Directors and the Board of
Governors of the Federal Reserve System (Federal Reserve),
1
and in
consultation with the President—invoked the systemic risk exception to
the least-cost resolution provision of the Federal Deposit Insurance Act
(FDI Act).
2
This decision allowed FDIC to guarantee deposits in excess of
the standard maximum deposit insurance amount of $250,000 at the two
failed banks. As of March 28, 2023, FDIC estimated the cost to the
Deposit Insurance Fund of resolving SVB to be $20 billion and for
1
The Federal Reserve System consists of the Board of Governors of the Federal Reserve
System and is divided into 12 Federal Reserve Districts, with each district served by a
regional Reserve Bank. In various places in this report, we specify Federal Reserve Board
staff, Federal Reserve Bank of San Francisco staff, or the Federal Reserve System to
clarify the relevant parties involved in a given action or statement.
2
12 U.S.C. § 1823(c)(4)(G).
Letter
Page 2 GAO-23-106736 2023 Failed Banks
Signature Bank to be $2.5 billion.
3
Also on March 12th, the Federal
Reserve created the Bank Term Funding Program (BTFP), backstopped
by Treasury, to provide liquidity to eligible depository institutions.
The failure of these two banks has raised questions from the public and
members of Congress about bank management and the supervision of
the banks. It has also raised questions about the events from March 10th
through March 12th that led to regulators’ use of the systemic risk
exception and the Federal Reserve’s establishment of the credit facility
under section 13(3) of the Federal Reserve Act.
4
You asked us to review the events surrounding the bank failures and
provide an interim report of our findings by April 28, 2023. This report
examines (1) bank-specific factors that may have contributed to the
failures of Silicon Valley Bank and Signature Bank; (2) supervisory
actions regulators took leading up to the bank failures; (3) immediate
events before the two systemic risk determinations on March 12, 2023,
including steps Treasury, FDIC, and the Federal Reserve took to invoke
the systemic risk exception, and the basis for each determination; and (4)
factors the Federal Reserve and Treasury considered to establish and
backstop BTFP, respectively, and the use of the program as of April 19,
2023.
Separately, the FDI Act requires GAO to review and report to Congress
on each systemic risk determination made by the Secretary of the
Treasury.
5
Also, under the authority provided to GAO in the Dodd-Frank
Wall Street Reform and Consumer Protection Act, GAO can study credit
facilities authorized by the Board of Governors under section 13(3) of the
Federal Reserve Act to assist Congress with its oversight
3
The Deposit Insurance Fund is funded by assessments levied on insured banks and
savings associations and is used to cover all deposit accounts (such as checking and
savings) at insured institutions, up to the insurance limit. According to FDIC,
approximately $19.2 billion of the estimated total cost of $22.5 billion for the resolutions is
attributable to the cost of covering uninsured deposits pursuant to the two systemic risk
determinations. By statute, FDIC must recover such losses through special assessments
and plans to do so through notice-and-comment rulemaking that the FDIC Board will
consider in May 2023. As a result, the $19.2 billion in losses incurred to cover uninsured
deposits will not directly affect the Deposit Insurance Fund balance. FDIC noted that these
loss estimates are subject to significant uncertainty and are likely to change.
4
12 U.S.C. § 343(3).
5
12 U.S.C. § 1823(c)(4)(G).
Page 3 GAO-23-106736 2023 Failed Banks
responsibilities.
6
We plan to further examine these and other issues
related to the two bank failures in upcoming GAO studies.
For the first objective, we analyzed regulatory financial data from 2018–
2022 for the two failed banks and assessed their condition relative to a
peer group of banks. We analyzed the most recently available financial
and regulatory annual data from S&P Capital IQ Pro, which provides
comprehensive data on financial institutions. For example, we compared
indicators of financial health, such as uninsured deposits to total assets,
for the failed banks to those of the peer group of banks. We relied on our
prior data reliability assessments and verified that the data collection
process had not changed by reviewing documentation and information
provided by S&P Capital IQ Pro. We determined that the financial
information we used was sufficiently reliable for assessing the institutions’
financial condition.
For the first and second objectives, we reviewed Federal Reserve and
FDIC examination manuals, Federal Reserve Bank of San Francisco
(FRBSF) and FDIC examination records, and bank management
responses to supervisory concerns related to the two failed banks for the
period from January 2018 through March 2023. We requested and
received the Federal Reserve’s and FDIC’s examination schedules;
scope, conclusion, and summary memorandums; supervisory letters and
reports of examination; management responses; and documentation of
any informal enforcement actions for SVB and Signature Bank.
Given our expedited time frames for reporting, we focused our review on
supervisory activities related to the banks’ liquidity and risk management
because these were the key factors the regulators and our own
preliminary analyses identified as contributors to the banks’ failures. We
did not review examination materials related to several other areas the
regulators examined, such as information technology, the Bank Secrecy
Act, consumer compliance, or the Community Reinvestment Act. For this
review, we did not request the regulators’ detailed workpapers or assess
the regulators’ adherence to their examination policies and procedures. In
addition, we did not include the actions of state regulators in the scope of
the report. Our findings about SVB’s and Signature Bank’s failures are
preliminary and may not capture all contributing factors. We plan to
6
31 U.S.C. § 714(f).
Page 4 GAO-23-106736 2023 Failed Banks
further examine FRBSF and FDIC supervisory decision-making and other
related issues in an upcoming GAO review.
For the third objective, we reviewed FDIC’s and the Federal Reserve’s
recommendations and supporting analyses and the subsequent
determinations by the Secretary of the Treasury to invoke the systemic
risk exception for the two bank failures. We did not evaluate FDIC’s, the
Federal Reserve’s, or Treasury’s analyses and conclusions.
For the fourth objective, we reviewed the Federal Reserve’s and
Treasury’s summary memorandums and analyses related to the
establishment and backstop of BTFP. We also reviewed Federal Reserve
statistics on the program’s use as of April 19, 2023. We did not evaluate
the Federal Reserve’s or Treasury’s analyses and conclusions.
For all the objectives, we reviewed relevant laws, such as the FDI Act and
the Federal Reserve Act; regulations on emergency lending authority and
resolution plans; and agency testimonies. We interviewed staff from
FDIC, the Federal Reserve, FRBSF, and Treasury. We also reviewed
relevant prior GAO reports.
We conducted this performance audit from March 21, 2023 to April 28,
2023 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
Each insured bank in the United States is primarily supervised by one of
three federal banking regulators. The Federal Reserve and FDIC are two
of them.
7
• The Federal Reserve supervises state-chartered banks that are
members of the Federal Reserve System, bank holding companies
7
The Office of the Comptroller of the Currency is the other federal banking regulator. For
more information on federal banking supervision, see GAO, Bank Supervision: Regulators
Improved Supervision of Management Activities but Additional Steps Needed,
GAO-19-352 (Washington, D.C.: May 14, 2019).
Background
Bank Regulators
Page 5 GAO-23-106736 2023 Failed Banks
and any nondepository institution subsidiaries of a bank holding
company, and savings and loan holding companies and any
subsidiaries (other than depository institutions) of a savings and loan
holding company, Edge Act and agreement corporations, and the U.S.
operations of foreign banks.
• FDIC supervises insured state-chartered banks that are not members
of the Federal Reserve System, state-chartered savings associations,
and insured state-chartered branches of foreign banks.
In addition, state-level bank regulatory agencies supervise banks
chartered at the state level.
The purpose of federal banking supervision is to help ensure that banks
operate in a safe and sound manner and comply with federal laws and
regulations for the provision of banking services. Federal banking
supervision also looks beyond the safety and soundness of individual
banks to promote the stability of the financial system as a whole.
Bank regulators promulgate rules to implement banking laws, supervise
banks to ensure their safety and soundness and compliance with those
rules, and issue formal and informal enforcement actions to those that do
not comply. Banking regulators supervise most banks through off-site
monitoring and on-site examinations. Regulators use off-site systems to
monitor the financial condition of an individual bank and the banking
system as a whole between on-site examinations.
8
To oversee large,
complex banks, including bank holding companies, bank examiners
conduct ongoing examination activities that target specific functional
areas or business lines at the institutions based on their examination
strategy, the institution’s risk profile, and the extent of supervisory
concern during the supervisory cycle. Regulators discuss such activities
with bank management throughout the year and incorporate them into the
final full-scope examination report issued at the end of the supervisory
cycle.
Bank examiners review and evaluate an institution’s condition using the
Uniform Financial Institutions Rating System, also known as CAMELS
(capital adequacy, asset quality, management, earnings, liquidity, and
8
Regulators generally are required to conduct a full-scope, on-site examination of each
bank they supervise at least once during each 12-month period, although the examination
cycle may be extended to 18 months for certain smaller, well-managed banks under
certain conditions.
Bank Supervision
Page 6 GAO-23-106736 2023 Failed Banks
sensitivity to market risk).
9
At the end of the supervisory cycle, a report of
examination is issued to the institution that may include supervisory
concerns, which a bank is expected to address within specific time
frames.
Regulators employ progressive enforcement regimes to address
supervisory concerns (see table 1). If the bank does not respond to the
concern in a timely manner, the regulators may take informal or formal
enforcement action, depending on the severity of the circumstances.
Informal enforcement actions include obtaining a bank’s commitment to
implement corrective measures under a memorandum of understanding.
Formal enforcement actions include issuance of a cease-and-desist order
or assessment of a monetary penalty.
Table 1: Types of Supervisory Concerns Issued by Federal Banking Regulators
Supervisory concern level
Federal Deposit Insurance
Corporation
Board of Governors of
the Federal Reserve
System
Concern resolved in normal
course
Supervisory recommendation
Matter requiring attention
Serious concern that
demands immediate board
attention
Supervisory recommendation,
listed as matter requiring
board attention
Matter requiring immediate
attention
Lack of adequate institution
response to serious
concern that demands
immediate response or
certain legal standard(s)
triggered
Informal or formal action
Informal or formal action
Source: GAO. | GAO-23-106736
Congress enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) in response to the savings and loan
9
In an examination, a depository institution is rated on each CAMELS component and
then given a composite rating, which generally bears a close relationship to the
component ratings. However, the composite is not an average of the component ratings.
The component and the composite ratings are scored on a scale of 1 (best) to 5 (worst).
Regulatory actions typically correspond to the composite rating, with regulatory actions
generally increasing in severity as ratings become worse.
Systemic Risk Exception
Page 7 GAO-23-106736 2023 Failed Banks
and commercial bank crisis.
10
FDICIA amended the FDI Act by
establishing a rule requiring FDIC to follow the least costly approach
when resolving an insured depository institution.
11
Under the rule, FDIC
generally must resolve a troubled insured depository institution using the
method expected to have the least cost to the Deposit Insurance Fund. In
addition, FDIC generally cannot use the fund to protect uninsured
depositors and creditors who are not insured depositors if such protection
would increase losses to the fund.
To make a least-cost determination, FDIC must (1) consider and evaluate
all possible resolution alternatives by computing and comparing their
costs on a present-value basis, and (2) select the least costly alternative
on the basis of the evaluation.
FDIC generally has resolved failed or failing banks using three methods:
(1) directly paying depositors the insured amount of their deposits and
disposing of the failed bank’s assets (deposit payoff and asset
liquidation); (2) selling only the bank’s insured deposits and certain other
liabilities, and some of its assets, to an acquirer (insured deposit transfer);
and (3) selling some or all of the failed bank’s deposits, certain other
liabilities, and some or all of its assets to an acquirer (purchase and
assumption). According to FDIC officials, they have most commonly used
purchase and assumption, because it is often the least costly and
disruptive alternative.
FDICIA also amended the FDI Act to create an exception to the least-cost
resolution requirement, and in 2010, the Dodd-Frank Wall Street Reform
and Consumer Protection Act narrowed that exception. Under what is
known as the systemic risk exception, FDIC may act to wind up an
insured depository institution for which it has been appointed receiver
without complying with the least-cost rule if compliance would have
“serious adverse effects on economic conditions or financial stability”—
that is, would cause systemic risk—and if such action would “avoid or
mitigate such adverse effects.” For instance, FDIC could provide debt or
deposit guarantees that protect uninsured depositors and creditors, who
10
Between 1980 and 1990, a record 1,020 thrifts failed at an estimated cost of about $100
billion to the Federal Savings and Loan Insurance Corporation that insured thrift deposits,
leading to its demise. During this same period, commercial banks also failed at record
rates—a total of 1,315 federally insured banks were closed or received financial
assistance from FDIC. In response, two laws were enacted—FDICIA and the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989.
11
12 U.S.C. § 1823(c)(4).
Page 8 GAO-23-106736 2023 Failed Banks
otherwise might suffer losses under a least-cost method. FDIC may act
under the exception only under the process specified in the statute (see
fig. 1).
Figure 1: Overview of Steps Regulators May Take to Invoke Systemic Risk Exception
The systemic risk exception requires FDIC to recover any resulting losses
to the Deposit Insurance Fund by levying one or more emergency special
assessments on insured depository institutions, depository institution
holding companies, or both, as FDIC determines appropriate.
12
Finally, the systemic risk exception includes requirements that serve to
ensure accountability for regulators’ use of this provision. The Secretary
of the Treasury must notify Congress in writing of any systemic risk
exception determination and must document each determination and
12
To levy a special assessment on depository institution holding companies, FDIC must
have the concurrence of the Secretary of the Treasury. 12 U.S.C. § 1823(c)(4)(G)(ii)(I).
Page 9 GAO-23-106736 2023 Failed Banks
retain the documentation for GAO review. GAO must report its findings to
Congress.
Under section 13(3) of the Federal Reserve Act, the Federal Reserve
Board can authorize Reserve Banks to extend credit to a broad range of
borrowers during unusual and exigent circumstances.
13
In 2010, the
Dodd-Frank Wall Street Reform and Consumer Protection Act added
restrictions to the Federal Reserve’s section 13(3) authority.
14
The act
required the Federal Reserve Board to implement any future emergency
lending through facilities with broad-based eligibility designed for the
purpose of providing liquidity to the financial system and not to aid a
failing financial company, and required the approval of the Secretary of
the Treasury prior to establishing a facility. Additionally, the act required
the Federal Reserve Board to promulgate a rule governing the use of
section 13(3) emergency lending authority—which it did on December 18,
2015, by amending Regulation A.
15
SVB was a state-chartered commercial bank and a member of the
Federal Reserve System that was founded in 1983 and headquartered in
Santa Clara, California. It was the main bank subsidiary of the SVB
Financial Group (SVB’s holding company).
16
The bank primarily served
entrepreneur clients in technology, healthcare, and private equity. The
bank’s deposits were mostly linked to businesses financed through
venture capital. The bank expanded into banking and financing for
venture capital, and added products and services to maintain clients as
they matured from their startup phase. SVB had assets of about $209
billion and about $175 billion in total deposits at year-end 2022.
13
Federal Reserve Banks typically lend to banks through discount window programs
based on established statutory criteria. 12 U.S.C. § 347b(a). The discount window allows
eligible institutions to borrow money, usually on a short-term basis, at an above-market
rate to meet temporary liquidity shortages. During the 2007–2009 financial crisis, the
Federal Reserve Board invoked its section 13(3) authority to create emergency programs
to stabilize financial markets and avert the failures of a few individual institutions.
14
Pub. L. No. 111-203, § 1101, 121 Stat. 1376, 2113 (2010).
15
Extensions of Credit by Federal Reserve Banks, 80 Fed. Reg. 78959, amending 12
C.F.R. Part 201 (Regulation A). Regulation A governs extensions of credit by Federal
Reserve Banks.
16
The company provided commercial and retail banking services and other financial
services in the United States and internationally.
Emergency Lending
Authority
March 2023 Failed Banks
Silicon Valley Bank
Page 10 GAO-23-106736 2023 Failed Banks
The California Department of Financial Protection and Innovation served
as SVB’s state regulator. The Federal Reserve was the primary federal
regulator for the bank and SVB Financial Group. SVB Financial Group
also had a UK subsidiary subject to UK laws and regulations and a few
other foreign branches, subsidiaries, and affiliates in other countries
subject to the laws of those countries.
On March 10, 2023, the California Department of Financial Protection and
Innovation closed SVB citing inadequate liquidity and insolvency, and
FDIC was simultaneously appointed receiver of the bank. In its role as
receiver, FDIC initially transferred all insured deposits to Deposit
Insurance National Bank of Santa Clara and later transferred all deposits
and a significant balance of the assets to a bridge bank, Silicon Valley
Bridge Bank N.A.
17
Signature Bank was a state-chartered nonmember commercial bank
founded in 2001 and headquartered in New York, New York. The bank
offered commercial deposit and loan products, and until 2018, focused
primarily on multifamily and other commercial real estate banking
products and services. In 2018 and 2019, the bank launched services to
the private equity industry, such as lending to venture capital companies.
Signature Bank also conducted a significant amount of business with the
digital assets industry. The bank had total assets of about $110 billion
and about $89 billion in total deposits at year-end 2022.
As a state-chartered commercial bank, the New York State Department of
Financial Services regulated Signature Bank. FDIC was the primary
federal regulator.
On March 12, 2023, the New York State Department of Financial
Services closed Signature Bank and appointed FDIC as receiver. In its
role as receiver, FDIC transferred all deposits and a significant balance of
the assets to a bridge bank, Signature Bridge Bank, N.A.
17
Under the FDI Act, FDIC may create a deposit insurance national bank to ensure that
customers have continued access to their insured funds.
Signature Bank
Page 11 GAO-23-106736 2023 Failed Banks
Rapid growth. From December 2018 to December 2022, SVB’s total
assets more than tripled from $56 billion to $209 billion, and Signature
Bank’s total assets more than doubled from $47 billion to $110 billion (see
fig. 2).
18
From 2019 through 2021, SVB and Signature Bank grew faster
than a group of peer banks.
19
The total assets of SVB and Signature
Bank grew by 198 percent and 134 percent, respectively. In contrast, the
median total assets for the group of peer banks increased by 33 percent
in the same period.
18
Throughout this report, we rounded dollars to the nearest billion and percentages to the
nearest percentage point.
19
Our analysis compared SVB and Signature Bank to a group of 19 banking institutions
with reported deposit balances and that each had total assets between $100 and $250
billion at year-end 2022.
Risky Business
Strategies along with
Weak Liquidity and
Risk Management
Contributed to the
Recent Bank Failures
Failed Banks Grew
Rapidly and Relied on
Less Stable Funding
Page 12 GAO-23-106736 2023 Failed Banks
Figure 2: Total Assets of Silicon Valley Bank and Signature Bank and Median Total
Assets for Peers, 2018–2022
Note: Our analysis compared Silicon Valley Bank and Signature Bank to a group of 19 banking
institutions with reported deposit balances that each had total assets between $100 and $250 billion
at year-end 2022.
Rapid growth can be an indicator of risk in a bank’s business. Regulators
are concerned with whether a bank’s risk-management practices can
maintain pace with rapid growth. According to FRBSF and FDIC
examination documents we reviewed, regulators identified issues related
to SVB and Signature Bank’s rapid growth and risk-management
practices.
20
In prior work, we identified aggressive growth strategies using
nontraditional, riskier funding as a factor in bank failures.
21
Less stable funding. SVB and Signature Bank reported increasing levels
of uninsured deposits, which can be an unstable source of funding for
20
FRBSF identified such issues at SVB in its 2020 examination. FDIC identified such
issues at Signature Bank in its 2019 examination.
21
See GAO, Financial Institutions: Causes and Consequences of Recent Bank Failures,
GAO-13-71 (Washington, D.C.: Jan. 3, 2013).
Page 13 GAO-23-106736 2023 Failed Banks
banks. SVB and Signature Bank relied on uninsured deposits to support
their rapid growth. At the end of 2021, SVB and Signature Bank reported
uninsured deposits to total assets at 80 percent and 82 percent,
respectively. Uninsured deposits can be unstable because customers
with uninsured deposits may be more likely to withdraw their funds during
times of stress. In 2019, an FDIC official said in a speech that elevated
levels of uninsured deposits could pose risks to regional banks.
22
Moreover, since 2018, SVB and Signature Bank reported a significantly
higher percentage of uninsured deposits to total assets than the median
for a group of peer banks (see fig. 3). The two banks’ higher reliance on
uninsured deposits may indicate a long-standing concentration of risk. In
2018–2022, SVB’s uninsured deposits to total assets ranged from 70 to
80 percent, and Signature Bank’s uninsured deposits to total assets
ranged from 63 to 82 percent. In contrast, during the same time period,
the median uninsured deposits to total assets for a group of peer banks
ranged from 31 to 41 percent—approximately half that of SVB and
Signature Bank.
22
Martin J. Gruenberg, Member, Board of Directors of the Federal Deposit Insurance
Corporation, “An Underappreciated Risk: The Resolution of Large Regional Banks in the
United States,” remarks to The Brookings Institution Center on Regulation and Markets
(Washington, D.C.: Oct. 16, 2019).
Page 14 GAO-23-106736 2023 Failed Banks
Figure 3: Uninsured Deposits to Total Assets for Silicon Valley Bank and Signature
Bank and Median Uninsured Deposits to Total Assets for Peers, 2018–2022
Note: Our analysis compared Silicon Valley Bank and Signature Bank to a group of 19 banking
institutions with reported deposit balances that each had total assets between $100 and $250 billion
at year-end 2022.
According to Federal Reserve Board and FRBSF staff and their
examination documents, SVB failed due to ineffective risk management,
including the management of its deposits and assets. FRBSF documents
stated that SVB’s risk-management framework was not commensurate
with the bank’s size and complexity. SVB’s business strategy focused on
serving the growing technology and venture capital sector. According to
FRBSF staff, these depositors held large cash balances for payroll and
operating expenses. FRBSF staff said the business strategy resulted in
increasing uninsured deposits from that sector and created a
concentrated client base. Federal Reserve officials said SVB did not
Weak Liquidity and Risk
Management Contributed
to Bank Failures
Liquidity and Risk
Management at SVB
Page 15 GAO-23-106736 2023 Failed Banks
manage the risk from its liabilities, noting that the deposits were highly
concentrated and could be volatile.
Our review of FRBSF examination documents for SVB found that FRBSF
identified issues related to the concentration of SVB’s deposits and
funding structure as early as 2018. In particular, FRBSF documents note
the potential volatility of SVB’s deposits could pose liquidity risks.
Additionally, in 2021, FRBSF identified key deficiencies in liquidity risk
management for SVB, including modeling of its deposit outflows during
stress and testing of its contingent funding plan.
SVB also was affected by rising interest rates. The bank had invested in
longer-term securities to generate yield against its deposits.
23
As interest
rates rose, SVB’s interest rate risk increased and the bank accumulated
unrealized losses on its lower-yielding securities. In 2022, FDIC reported
that the banking sector had an overall elevated level of unrealized losses
on available-for-sale and held-to-maturity securities.
24
Unrealized losses
can become actual losses if a bank needs to sell the securities to meet
liquidity needs, which can occur with deposit outflows. According to
FRBSF staff and the examination documents, SVB did not effectively
manage the interest rate risk of the securities or develop appropriate
interest rate risk-management tools, models, or metrics. In a November
2022 supervisory letter to SVB, FRBSF stated that SVB’s interest rate
simulations were not reliable and called into question the effectiveness of
its risk-management practices. At year-end 2022, SVB reported over $15
billion in unrealized losses in its held-to-maturity securities portfolio,
equivalent to 89 percent of the bank’s common equity tier 1 capital.
25
On March 8, 2023, SVB announced the sale of approximately $21 billion
in securities and a resulting loss of $1.8 billion. At the same time, SVB
also announced that it intended to raise about $2.25 billion in new capital.
23
According to Federal Reserve staff, the bank invested in securities with an average
duration of 4 years. Federal Reserve staff said the average duration dropped to slightly
under 3 years with interest rate hedges in place at the time.
24
Federal Deposit Insurance Corporation, Quarterly Banking Profile, First Quarter 2022
(Washington, D.C.: May 24, 2022).
25
Common equity tier 1 capital is considered the highest-quality capital that a banking
institution can have to support its operations and absorb unexpected financial losses.
Common equity tier 1 capital consists primarily of retained earnings (the profits a bank
earned but has not paid out to shareholders in the form of dividends or other distributions)
and qualifying common stock, with deductions for items such as goodwill and deferred tax
assets.
Page 16 GAO-23-106736 2023 Failed Banks
The next day, the bank faced significant and sudden deposit withdrawal
requests that totaled over $40 billion. According to FRBSF staff, the
bank’s concentrated and interconnected client base began to withdraw
deposits quickly after speculations about the bank’s distress. FRBSF staff
told us that they worked with the bank to arrange collateral that would
allow it to borrow from the discount window. According to FRBSF staff, on
the morning of March 10th, SVB expected to have an additional $100
billion in deposit withdrawal requests for that day. FRBSF staff said the
bank did not have enough collateral to borrow from the discount window
to pay for its expected obligations.
Signature Bank had exposure to the digital assets industry and declining
liquidity in the months prior to failure. According to FDIC officials and
consistent with findings we saw in FDIC examination documents, poor
governance and unsatisfactory risk-management practices were the root
causes of Signature Bank’s failure. Due to the weak practices, FDIC staff
said Signature Bank management was unable to fully understand the
bank’s liquidity positions in the days and hours before failure. Our review
of FDIC examination documents for Signature Bank found that FDIC had
repeatedly identified weaknesses related to the bank’s liquidity-
management framework and contingency planning since 2018. In 2019,
FDIC found planning and control weaknesses prevented the bank from
adequately identifying, measuring, and controlling liquidity risk.
In the year preceding its failure, Signature Bank had declining liquidity
and reduced its exposure to deposits from the digital assets industry.
Signature Bank funded its deposit declines with cash and borrowings
collateralized with securities and loans. In the fourth quarter of 2022,
Signature Bank announced its intent to reduce its exposure to deposits
from the digital asset industry. In 2022, the bank’s deposits declined by
$17.5 billion ($12 billion of which represented deposits related to the
digital assets industry). Signature Bank’s balance sheet cash holdings
were reduced from $30 billion in 2021 to $6 billion in 2022.
In March 2023, FDIC officials said Signature Bank faced increased
market scrutiny after a bank perceived to be similar, Silvergate Bank,
Liquidity and Risk
Man
agement at Signature
Bank
Page 17 GAO-23-106736 2023 Failed Banks
experienced distress.
26
On March 10th, Signature Bank began to
experience deposit withdrawals following distress at SVB. Signature Bank
did not have sufficient cash to fulfill its large number of deposit withdrawal
requests. According to FDIC officials, Signature Bank was unprepared for
and unable to enact contingency plans against the large deposit
withdrawal requests. For example, FDIC staff told us that due to the
bank’s weak liquidity practices, bank management had difficulty initially
determining its borrowing needs to fund pending outflows.
In the years prior to 2023, FRBSF and FDIC identified liquidity and
management risks at SVB and Signature Bank—key drivers of the banks’
failures. However, neither regulator’s actions resulted in management
sufficiently mitigating the risks that contributed to the banks’ failures. As
we noted in a 2015 GAO report on bank failures, although regulators
often identified risky practices early in previous banking crises, the
regulatory process was not always effective or timely in correcting the
underlying problems before the banks failed.
27
FRBSF was generally positive in its ratings of SVB from December 2018
to June 2022, rating SVB’s overall condition as “satisfactory” during that
period. In addition, examiners assigned the highest available CAMELS
rating for SVB’s liquidity-management practices from December 2018 to
June 2022 (see table 2). In the same period, examiners assigned the
second-highest available CAMELS rating for management practices. As
noted earlier in this report, deficient liquidity and management practices
were factors contributing to the bank’s failure.
Table 2: Uniform Financial Institutions Rating System (CAMELS) Ratings for Silicon Valley Bank, 2018–2023
Rating type
2018
2019
2020
2021
2022
2023
a
Composite rating
2
2
2
2
3
N/A
Capital component rating
2
2
2
2
2
N/A
26
Silvergate Bank and Signature Bank focused portions of their business on the digital
asset industry and its customers. Starting in the fourth quarter of 2022, Silvergate Bank
experienced a bank run due to concerns surrounding its involvement with the digital
assets industry. The bank faced steep declines in its deposits and was forced to sell debt
securities to cover withdrawals, resulting in a loss to earnings. Silvergate Bank announced
its voluntary liquidation on March 8, 2023.
27
GAO, Bank Regulation: Lessons Learned and a Framework for Monitoring Emerging
Risks and Regulatory Response, GAO-15-365 (Washington, D.C.: June 25, 2015).
Regulators Did Not
Escalate Supervisory
Actions in Time to
Mitigate Key Risks
Associated with the
Bank Failures
Federal Reserve Identified
Risks and Took
Supervisory Actions, but
Did Not Adequately
Escalate Actions Prior to
SVB’s Failure
Page 18 GAO-23-106736 2023 Failed Banks
Rating type
2018
2019
2020
2021
2022
2023
a
Asset quality component rating
2
2
2
2
2
N/A
Management component rating
2
2
2
2
3
N/A
Earnings component rating
2
2
2
2
2
N/A
Liquidity component rating
1
1
1
1
2
N/A
Sensitivity to market risk component rating
2
2
2
2
2
N/A
Legend: N/A = not available
Source: GAO presentation of Federal Reserve Bank of San Francisco information. | GAO-23-106736
Note: In an examination, a depository institution is rated on each CAMELS component and then given
a composite rating, which generally bears a close relationship to the component ratings. However, the
composite is not an average of the component ratings. The component and the composite ratings are
scored on a scale of 1 (best) to 5 (worst).
a
The Federal Reserve Bank of San Francisco had not finalized examinations to determine Silicon
Valley Bank’s 2023 CAMELS ratings at the time of the bank’s failure in March 2023.
Despite overall satisfactory ratings for SVB, FRBSF had noted several
concerns relevant to the bank’s March 2023 failure. For example, FRBSF
examiners made supervisory findings as early as 2018 that indicated
concerns with SVB’s management practices, according to our review of
FRBSF supervisory documents (see table 3). In 2018, FRBSF found that
despite liquidity levels appearing strong, funding sources were
concentrated and potentially volatile on short notice. Examiners found in
2020 that although stress test modeling showed the bank had ample
liquidity over stressed periods, the stress tests did not provide insight into
liquidity risks for stressed periods of 30 days or less. FRBSF also issued
or had outstanding matters requiring attention related to risk management
and liquidity in 2018, 2019, and 2020.
28
Table 3: Federal Reserve Supervisory Findings Issued to Silicon Valley Bank, 2018–2023
Supervisory action
2018
2019
2020
2021
2022
2023
Matters requiring immediate attention (MRIA)
0
0
2
5
6
1
MRIAs related to liquidity or risk management
0
0
0
2
3
0
Matters requiring attention (MRA)
10
14
7
14
9
0
MRAs related to liquidity or risk management
2
3
0
4
1
0
Source: GAO presentation of Federal Reserve Bank of San Francisco information. | GAO-23-106736
As of April 5, 2021, the bank’s overall condition was still “satisfactory” and
had the highest CAMELS rating available for its liquidity management.
28
In 2018, FRBSF issued two matters requiring attention related to SVB’s risk
management. In 2020, it issued one matter requiring attention related to governance.
Page 19 GAO-23-106736 2023 Failed Banks
The bank also maintained the second-highest rating for its management
practices. However, in June 2021, increases in asset levels at SVB
Financial Group moved the entity from the Federal Reserve’s Regional
Banking Organization category into the Large and Foreign Banking
Organization category. As such, SVB Financial Group was subject to
oversight by the Federal Reserve’s Large and Foreign Banking
Organization Program and examination under the Large Financial
Institution rating system.
29
A Large Financial Institution rating represents
a supervisory evaluation of whether a firm possesses sufficient financial
and operational strength and resilience to maintain safe-and-sound
operations and comply with laws and regulations, including those related
to consumer protection, through a range of conditions.
30
According to
Federal Reserve staff, moving into the Large Financial Institution rating
system meant that SVB had a larger dedicated examination team (with a
specific team member covering liquidity) and more rigorous supervisory
requirements.
As we detail below, after the Federal Reserve classified SVB as a
Category IV bank and subjected it to Large Financial Institution
supervision, examiners found liquidity and management deficiencies not
previously identified under the Regional Banking Organization supervision
program. We plan to further examine how the Category IV designation
affected SVB supervision prior to its March 2023 failure and other related
issues in an upcoming GAO review.
29
Before 2018, all bank holding companies with more than $50 billion in assets were
subject to enhanced prudential regulation to address too-big-to-fail concerns. In 2018, the
Economic Growth, Regulatory Relief, and Consumer Protection Act, Pub. L. No.115-174,
raised this asset threshold to $250 billion and provided the Federal Reserve with
discretion to apply tailored regulation to banks with $100 billion–$250 billion in assets. In
its implementing regulation, the Federal Reserve created four categories of tiered
regulation for banks with more than $100 billion in assets. Silicon Valley Bank was
considered a Category IV bank under the Federal Reserve’s regulations, subject to the
least-stringent enhanced prudential regulation requirements relative to banks considered
Category I–III.
30
The Large Financial Institution rating system consists of three components: capital
planning and positions, liquidity risk management and positions, and governance and
controls. Each component rating is assigned along a four-level nonnumeric scale: Broadly
Meets Expectations, Conditionally Meets Expectations, Deficient-1, and Deficient-2.
According to Federal Reserve staff, firms that are subject to Large and Foreign Banking
Organization Program supervision have a higher degree of Federal Reserve Board staff
involvement in the direct supervision of the firm.
Page 20 GAO-23-106736 2023 Failed Banks
In August 2021, FRBSF conducted a liquidity review of SVB Financial
Group that raised serious concerns around how the institution was
managing liquidity risk. FRBSF described the review in its scoping
memorandum as a baseline assessment to inform SVB Financial Group’s
ratings under the Large Financial Institution rating system. In the scoping
memorandum, FRBSF further noted that it had conducted limited
supervisory work on liquidity and stress testing over the past two
supervisory cycles. FRBSF cited an examination pause for Regional
Banking Organizations during the pandemic
31
and the tailoring of
enhanced prudential standards that resulted in less stringent regulation
for Regional Banking Organizations.
32
FRBSF’s August 2021 liquidity
review found that liquidity risk-management practices were below
supervisory expectations. For example, SVB’s internal liquidity stress
testing, liquidity limits framework, and contingency funding plan had
“foundational shortcomings.”
33
In response to these issues, FRBSF
issued two matters requiring immediate attention and four matters
requiring attention that were focused on addressing these liquidity
concerns.
In addition, a May 2022 governance and risk-management target review
of SVB Financial Group and SVB—conducted under the Large Financial
Institution rating system—found that the bank’s governance and risk-
management practices were below supervisory expectations. In response
to these issues, FRBSF issued three matters requiring immediate
attention related to risk management.
31
Beginning on March 24, 2020, the Federal Reserve temporarily ceased (for
approximately 3 months) most regular examination activity for institutions with less than
$100 billion in assets. See Board of Governors of the Federal Reserve System,
Supervision and Regulation Report (Washington, D.C.: November 2020).
32
In a prior report, we made a recommendation to the Federal Reserve related to
preparations to manage future disruptions to examinations. Specifically, we recommended
that the Federal Reserve’s Chief Operating Officer develop and document specific action
steps and time frames for completing the components of the Federal Reserve’s enterprise
risk-management framework related to identifying and assessing risks to its supervisory
mission, such as those caused by the COVID-19 pandemic. See GAO, Bank Supervision:
Lessons Learned from Remote Supervision during Pandemic Could Inform Future
Disruptions, GAO-22-104659 (Washington, D.C.: Sept. 8, 2022).
33
Specific examples of foundational shortcomings include that the scenario design for
liquidity stress testing did not adequately address both market and idiosyncratic risks, that
the liquidity limits framework was inadequate because it did not address post-stress limits
or reflect the interconnectedness of liquidity risk, and that the contingency funding plan
was outdated and not linked to the liquidity risk framework.
Page 21 GAO-23-106736 2023 Failed Banks
Soon after, on June 30, 2022, FRBSF downgraded SVB’s CAMELS
composite rating from a 2 to a 3, its management component rating from
a 2 to a 3, and its liquidity component rating from a 1 to a 2. Specifically,
FRBSF examiners found that the bank’s management and board
performance needed improvement and were less than satisfactory. For
example, the board did not provide effective oversight of implementation
of the risk-management framework and execution of the bank’s transition
into the Large Financial Institution category. The board also did not hold
management accountable for the root causes contributing to weaknesses
in liquidity risk management and other risks.
On August 17, 2022, FRBSF issued a supervisory letter to SVB Financial
Group and SVB on its first Large Financial Institution rating, which
indicated weaknesses in governance and controls and liquidity.
Specifically, FRBSF rated SVB Financial Group “Deficient-1” for
governance and controls, stating that the firm’s risk-management
program was not effective, did not incorporate coverage for all risk
categories, and did not address foundational, enterprise-level risk-
management matters, such as risk acceptance, issues management, and
escalation protocols (see table 4). FRBSF rated SVB Financial Group’s
liquidity as “Conditionally Meets Expectations,” stating that while actual
and post-stress liquidity positions reflected a sufficient buffer, the firm
lacked several foundational elements for liquidity risk management that
negatively affected the sufficiency of its post-stress liquidity buffer.
34
Table 4: Large Financial Institution Ratings for Silicon Valley Bank Financial Group,
2022–2023
Rating component
2022
2023
a
Governance and controls
Deficient-1
N/A
Liquidity
Conditionally Meets Expectations
N/A
Capital
Broadly Meets Expectations
N/A
Legend: N/A = not available
Source: GAO presentation of Federal Reserve Bank of San Francisco information. | GAO-23-106736.
Note: According to a Federal Reserve Bank of San Francisco supervisory rating letter, Silicon Valley
Bank received its first Large Financial Institution rating on August 17, 2022.
34
Notable missing elements for liquidity risk management included more granular deposit
segmentation to produce effective modeling of deposit outflows during stress and more
comprehensive testing of its contingent funding plan to assess the feasibility of funding
options under stress.
Page 22 GAO-23-106736 2023 Failed Banks
a
The Federal Reserve Bank of San Francisco had not finalized examinations to determine Silicon
Valley Bank’s 2023 Large Financial Institution ratings at the time of the bank’s failure in March 2023.
In the same August 17, 2022, supervisory letter, FRBSF stated its intent
to initiate an informal, nonpublic enforcement action, in the form of a
memorandum of understanding with SVB Financial Group and SVB.
35
The memorandum’s provisions were focused on correcting the
management and liquidity risk issues mentioned above and were
designed to hold the bank’s board and executive management
accountable for addressing the root cause deficiencies contributing to
ineffective governance and risk management.
FRBSF staff told us that staff started working on the memorandum of
understanding after communicating the July 2022 downgrade. In addition,
Federal Reserve Bank staff started working with the Federal Reserve
Board’s Supervision and Regulation and Legal divisions in late August
2022 to develop the memorandum. The memorandum of understanding
was subsequently kept open to allow for the completion of additional
examination work by FRBSF. According to Federal Reserve staff, Federal
Reserve Board and FRBSF staff collaborated on provisions of the
memorandum, including those related to liquidity and risk management,
which required senior-level review. However, the Federal Reserve did not
finalize it before SVB failed in March 2023.
While SVB management failed to take adequate and timely steps to
mitigate risks, FRBSF staff generally accepted SVB’s planned actions to
correct deficiencies. Our review of examination staff’s acknowledgement
of SVB management responses found the staff generally agreed that
SVB’s planned actions were reasonably designed to remediate the
underlying supervisory issues. FRBSF staff also said that SVB generally
was taking actions to address risks associated with the 2023 failure, but
the remediation process was time-consuming considering the scope of
the issues. In May 2022, FRBSF granted SVB a 7-month extension to
address one of its November 2021 matters requiring immediate attention.
FRBSF noted in its letter that SVB had taken prompt action on the matter
regarding the bank’s inability to identify limitations and make appropriate
changes to its liquidity risk-management framework. However, while the
bank had made material progress toward remediation, it needed
additional time to finalize changes and ensure their sustainability. FRBSF
35
According to FRBSF officials, they may start to consider enforcement action if a bank’s
management practices are rated a 3, meaning the bank is “not well-managed.”
Page 23 GAO-23-106736 2023 Failed Banks
staff also noted that the bank was taking steps like trying to hire a new
board chair and chief risk officer prior to the March 2023 failure.
36
Although Federal Reserve staff stated that the Federal Reserve’s
supervisory actions compelled SVB to take steps including replacing the
Board Chair, Chief Risk Officer, and Treasurer and revising its incentive
compensation program to incorporate risk management as a formal
assessment criteria, its supervisory actions were inadequate given the
bank’s known liquidity and management deficiencies. Furthermore,
FRBSF’s actions lacked urgency. For example, FRBSF did not
recommend the issuance of a single enforcement action despite the
bank’s serious liquidity and management issues before the bank’s failure.
We plan to further examine the Federal Reserve’s, including FRBSF’s,
decision-making process for escalating supervisory actions and other
related issues in an upcoming GAO review.
FDIC’s ratings of Signature Bank found that the bank’s overall condition
was “satisfactory” from December 2018 to December 2021. In addition,
FDIC assigned the second-highest available CAMELS rating for the
bank’s management practices (see table 5). As noted earlier, weak
management practices contributed to the bank’s failure.
Table 5: Uniform Financial Institutions Rating System (CAMELS) Ratings for Signature Bank, 2018–2023
Rating type
2018
2019
2020
2021
2022
a
2023 (as of March 11, 2023)
Composite rating
2
2
2
2
N/A
5
Capital component rating
2
2
2
2
N/A
3
Asset quality component rating
2
2
2
2
N/A
2
Management component rating
2
2
2
2
N/A
5
Earnings component rating
2
2
2
2
N/A
2
Liquidity component rating
2
3
3
3
N/A
5
Sensitivity to market risk component rating
2
2
2
2
N/A
2
Legend: N/A = not available
Source: GAO analysis of Federal Deposit Insurance Corporation information. | GAO-23-106736
Note: In an examination, a depository institution is rated on each CAMELS component and then given
a composite rating, which generally bears a close relationship to the component ratings. However, the
36
According to Federal Reserve staff, the decision to name a new board chair and replace
the Chief Risk Officer was first communicated to FRBSF supervision staff in January
2022. The decision to replace the Chief Risk Officer was prompted by oversight
deficiencies that FRBSF supervision staff raised with SVB’s board of directors during the
January 2022 board meeting.
FDIC Identified Risks and
Took Supervisory Actions,
but Did Not Adequately
Escalate Actions Prior to
Signature Bank’s Failure
Page 24 GAO-23-106736 2023 Failed Banks
composite is not an average of the component ratings. The component and the composite ratings are
scored on a scale of 1 (best) to 5 (worst).
a
At the time of Signature Bank’s failure, the Federal Deposit Insurance Corporation had not
completed its 2022 supervisory letters, which would have communicated the updated CAMELS
ratings.
Despite FDIC’s overall “satisfactory” assessment during 2018–2021,
FDIC took numerous supervisory actions to mitigate liquidity and
management deficiencies at the bank, including downgrading Signature
Bank’s liquidity component from 2 to 3 during the 2019 examination cycle,
meaning the bank’s liquidity management practices needed
improvement.
37
In its examination documents, FDIC explained that
Signature Bank’s practices did not correspond with the bank’s complexity,
risk profile, and scope of operations due to weaknesses in areas including
liquidity contingency planning and internal controls. These weaknesses
prevented the bank from appropriately understanding the potential effects
of adverse liquidity events and emergency cash flow needs.
In addition, FDIC issued matters requiring board attention and
supervisory recommendations related to management, liquidity, and
corporate governance risks in each year before the bank’s failure (see
table 6). For example, FDIC issued two matters requiring board attention
in 2018 and one matter requiring board attention in 2019 related to
Signature Bank management’s handling of the bank’s increasing liquidity
and management risks. The matters focused on issues including the
bank’s adherence to its risk appetite statement and liquidity contingency
planning.
38
In addition to the matters and supervisory recommendations
FDIC issued in a given year, many matters and recommendations carried
over to later years because they were unresolved. For instance, FDIC’s
2019 matter to Signature Bank on liquidity contingency planning remained
outstanding through the bank’s failure in March 2023.
37
As noted earlier, deficient liquidity management practices contributed to the bank’s
failure.
38
For example, as loan growth outpaced deposit growth, Signature Bank’s loan-to-deposit
ratio continued to increase and exceeded the bank’s established risk limits throughout
most of 2018. In addition, several of the bank’s liquidity-related financial metrics breached
its established “warning” levels.
Page 25 GAO-23-106736 2023 Failed Banks
Table 6: FDIC Supervisory Actions Issued to Signature Bank, 2018–2023
Supervisory action
2018
2019
2020
2021
2022
2023
a
Matters requiring board attention
4
3
0
0
2
N/A
Matters requiring board attention related to liquidity or risk
management
2
1
0
0
N/A
N/A
Liquidity supervisory recommendations
4
18
0
0
N/A
N/A
Model risk management supervisory recommendations
3
0
0
12
N/A
N/A
Sensitivity to market risks supervisory recommendations
2
12
0
0
N/A
N/A
Corporate governance or enterprise risk management supervisory
recommendations
5
0
0
0
4
N/A
Legend: FDIC = Federal Deposit Insurance Corporation; N/A = not available
Source: GAO analysis of FDIC information. | GAO-23-106736
a
At the time of Signature Bank’s failure, FDIC had not conducted its 2023 examinations of the bank.
FDIC had not completed its 2022 examination documents for Signature
Bank at the time of its failure. FDIC staff told us they were considering
escalating supervisory actions in 2022—including taking enforcement
actions and downgrading CAMELS composite or component ratings—
based on the findings of the completed 2022 corporate governance target
review and the in-process target reviews for liquidity and other topics.
39
These escalatory actions would have taken place in the second quarter of
2023, after FDIC staff finalized documentation such as the 2022 report of
examination and supervisory letters. According to preliminary findings we
reviewed from FDIC’s 2022 liquidity target examination, FDIC planned to
reiterate its 2019 matter requiring board attention on liquidity contingency
planning. It also had drafted a new matter requiring board attention on
Signature Bank’s audit program for liquidity and funds management, as
well as several supervisory recommendations.
FDIC stated that because Signature Bank did not mitigate its liquidity and
management-related issues in a timely manner, FDIC issued an interim
CAMELS rating downgrade on March 11, 2023, the day before Signature
Bank was closed (see again table 5). In the downgrade letter, FDIC
39
According to FDIC’s examination module on informal actions, examiners should
consider recommending formal enforcement action pursuant to section 8 of the FDI Act for
institutions rated 3, particularly if management appears unwilling to take appropriate
corrective measures, and for all composite 4- or 5-rated institutions. Furthermore, the
examination module states that examiners should consider whether violations or
objectionable practices were intentional, repetitive, or substantive; the institution’s history
of violations and unsatisfactory practices; management’s history of instituting timely
remedial or corrective actions; and the extent of harm caused, or likely to be caused, by
the violations or unsatisfactory practices.
Page 26 GAO-23-106736 2023 Failed Banks
stated that management failed to demonstrate the capability to properly
identify, measure, monitor, and control the bank’s liquidity position.
Furthermore, funds management practices were critically deficient for the
complexity of the bank’s liquidity risk profile, and the continued viability of
the institution was threatened. The lack of urgency, formality, and
preparedness around liquidity contingency funding plans reflected poorly
on management and was another factor for these downgrades. In the
letter, FDIC also notified Signature Bank of its intent to pursue a formal
enforcement action against the bank for failure to mitigate concerns
outlined in the downgrade letter, but the bank failed the next day.
Signature Bank’s management failed to take adequate steps to mitigate
the bank’s long-standing liquidity and management issues before the
bank’s failure. For example, FDIC staff told us that Signature Bank
management could sometimes be unresponsive and difficult to work with.
They added that Signature Bank management would report to FDIC that
they mitigated an issue, only for FDIC staff to find the issue unresolved
during transaction testing. This behavior caused FDIC to issue repeat
supervisory recommendations to Signature Bank. In upcoming work, we
will further explore the communication between FDIC and Signature
Bank’s management and board.
Although FDIC took some actions to escalate its supervisory actions in
2019 and 2020, its actions were inadequate given the bank’s long-
standing liquidity and management deficiencies. Furthermore, FDIC
lacked urgency despite Signature Bank’s repeated failures to remediate
liquidity and management issues. FDIC did not pursue more forceful
supervisory actions in a timely manner that might have helped the bank
correct its liquidity and management issues before its failure in March
2023. For example, FDIC only issued an enforcement action and further
downgraded the bank’s composite or component CAMELS ratings the
day before Signature Bank’s failure in 2023. Taking more decisive actions
in the years prior to Signature Bank’s failure could have helped compel
bank management to mitigate the liquidity and management weaknesses
that contributed to the bank’s failure. We plan to further examine FDIC’s
decision-making process for escalating supervisory actions and other
related issues in an upcoming GAO review.
Page 27 GAO-23-106736 2023 Failed Banks
Following the financial crisis of 2007–2009, we identified issues with the
banking regulators’ escalation of supervisory concerns. In 2011, we
reported that the prompt corrective action (PCA) framework—which was
designed in 1991 to improve regulators’ ability to identify and promptly
address deficiencies at depository institutions and minimize losses to the
Deposit Insurance Fund—did not result in consistent actions to elevate
concerns.
40
We noted that because the PCA framework’s triggers for
action rely on capital—a lagging indicator of bank health—problems might
be discovered too late for banks to recover.
We recommended in 2011 that the federal banking regulators consider
additional triggers that would require early and forceful regulatory actions
tied to specific unsafe banking practices.
41
The regulators established a
working group to review their enforcement practices and tools. They also
adopted final rules in 2013 that included another option that we
recommended they consider (increasing the capital ratios that place
banks into the framework’s capital categories). However, they did not take
further steps to implement noncapital triggers to initiate more timely
action. While the regulators took steps to address our recommendations,
we continue to believe that incorporating noncapital triggers would
enhance the framework by encouraging earlier action and giving the
regulators and banks more time to address deteriorating conditions
before capital is depleted. We also plan to further review issues related to
SVB’s and Signature Bank’s failures in upcoming GAO work.
40
GAO, Bank Regulation: Modified Prompt Corrective Action Framework Would Improve
Effectiveness, GAO-11-612 (Washington, D.C.: June 23, 2011).
41
We directed our 2011 recommendations to FDIC, the Federal Reserve, and the Office of
the Comptroller of the Currency.
Past GAO Work Warned
about the Risks of
Untimely Escalation by
Regulators and the Need
for Early Triggers
Page 28 GAO-23-106736 2023 Failed Banks
The determination to recommend the systemic risk exception took place
quickly—essentially over 2 days—during which time SVB and Signature
Bank were deteriorating rapidly and Treasury, FDIC, and the Federal
Reserve were responding rapidly (see table 7). For more details, see
appendix II.
Table 7: Key Actions Associated with Invoking Systemic Risk Exception for Silicon Valley Bank and Signature Bank, March 9–
13, 2023
Date
Key action
March 9
(Thursday)
The Federal Reserve notified FDIC of the possible failure of SVB the evening before its failure. Principals of
Treasury, FDIC, and the Federal Reserve began having informal conversations about whether there might be
systemic consequences to SVB’s failure
March 10
(Friday)
SVB failed and FDIC was appointed receiver. FDIC, in accordance with the least-cost provision of the Federal
Deposit Insurance Act, created the Deposit Insurance National Bank of Santa Clara, transferred all insured
deposits to it, and developed a list of prospective bidders.
The Secretary of the Treasury and leaders from FDIC, the Federal Reserve, and the Office of the Comptroller
of the Currency gathered to discuss developments around SVB.
FDIC was notified by the Federal Reserve that Signature Bank was in an overdraft position (late afternoon),
and was notified by its New York Regional Office that evening of the possible failure of Signature Bank.
March 11
(Saturday)
FDIC and Federal Reserve staff started coordinating efforts to consider recommending the systemic risk
exception for SVB and Signature Bank.
FDIC initiated marketing for the Deposit Insurance National Bank of Santa Clara.
March 12
(Sunday)
Signature Bank failed and FDIC was appointed receiver.
FDIC received one viable bid for SVB, which did not meet the least-cost test. Two other bids were received but
lacked required approval from the submitting institution’s board of directors and were not valid. The two invalid
bids also did not meet the least-cost test.
The systemic risk exception was invoked for SVB and Signature Bank. Treasury, FDIC, and the Federal
Reserve announced the decisions to guarantee all deposits of the two banks. FDIC created bridge banks for
SVB and Signature Bank.
Treasury and
Regulators Identified
the Risk of Contagion
to Support the
Systemic Risk
Exception
Determinations
Treasury Made
Determinations for
Systemic Risk Exception
Quickly
Page 29 GAO-23-106736 2023 Failed Banks
Date
Key action
March 13
(Monday)
Both bridge banks opened for normal business.
Legend: FDIC = Federal Deposit Insurance Corporation; Federal Reserve = Board of Governors of the Federal Reserve System; SVB = Silicon Valley
Bank
Source: GAO analysis of Treasury, FDIC, and Federal Reserve information. | GAO-23-106736
As SVB and Signature Bank failed, FDIC and the Federal Reserve staff
told us that they conducted analyses and worked closely together,
including exchanging drafts of the recommendations and supporting
analyses to invoke the systemic risk exception for the two banks. The
Boards of FDIC and the Federal Reserve unanimously voted in favor of
making the systemic risk exception recommendations, and the Secretary
of the Treasury made the determinations after having received their
written recommendations and consulted with the President. By the
evening of March 12th, the three agencies jointly announced the systemic
risk determinations authorizing FDIC to guarantee all deposits (including
uninsured deposits) of SVB and Signature Bank. For more details, see
appendix III.
Treasury staff told us they worked to assess the effects of these failures
on the broader banking system. They said that they consulted regularly
with FDIC and the Federal Reserve, and concurred with the bases of their
recommendations to invoke the systemic risk exception. Treasury also
reported in its internal memorandum that its authorization to invoke the
systemic risk exception met the requirements of section 13 of the FDI Act.
Financial contagion. In the memorandums supporting their
recommendations to invoke the systemic risk exception, FDIC and the
Federal Reserve reported that they found that a least-cost resolution of
SVB and Signature Bank would intensify deposit runs and liquidity
pressures on other U.S. banks. The Federal Reserve noted that many
other financial institutions that derive large portions of their funding from
uninsured deposits also were under considerable pressure, and the
failure of the two banks would lead to even greater dislocations in deposit
markets. The Federal Reserve also noted that the deposit run at SVB
already had caused stress at other banks with similar clients, despite
material differences between the firms.
Similarly, FDIC officials told us that the deposit outflows and stress could
have caused additional failures. In its memorandum, FDIC reported
observing that financial institutions already had experienced net outflows
as customers utilized existing lines of credit and depositors and investors
Least-Cost Resolution
Deemed Likely to Result in
Further Bank Runs and
Financial Contagion
Page 30 GAO-23-106736 2023 Failed Banks
withdrew funds. FDIC also reported that it already was aware of several
reports of businesses, including large corporate borrowers, withdrawing
large amounts of uninsured deposits.
Broader economic effects. FDIC and the Federal Reserve reported
observing that many of the uninsured depositors of the banks were
corporate enterprises. Therefore, losses to these firms or an inability to
access their funds for even a short time could put these firms at risk of not
being able to make payroll and pay suppliers, potentially causing
disruptions to U.S. market and industrial operations.
The regulators cited examples of disruptions and losses. The Federal
Reserve indicated that several depositors of SVB were unable to make
payroll payments at the end of the week leading to the failure. In addition,
several payroll companies contracted with SVB to process paychecks,
which led to delayed payroll for companies that did not bank at SVB. The
Federal Reserve also reported that some companies that held deposits at
SVB were forced to sell their uninsured deposit claims at 90 cents on the
dollar on March 10, 2023, to make payroll.
The Federal Reserve indicated that compliance with the least-cost
resolution requirement could result in lending cost increases, and banking
organizations could rapidly become less willing or able to lend to
businesses and households. Similarly, FDIC reported observing that the
uncertainty surrounding the banks’ rapid losses had shaken the
confidence of investors and other counterparties in the banking industry,
and restricted the inflow of private capital necessary to restore the
industry’s financial health and facilitate new lending. According to the
Federal Reserve, these restrictions in credit flows and related effects
would contribute to materially weaker economic performance and
materially higher unemployment.
The Federal Reserve and FDIC assessed that preserving unimpaired
access to all uninsured deposits for SVB and Signature Bank would help
mitigate adverse impacts to financial stability and the economy. Treasury
concurred with FDIC’s and the Federal Reserve’s analysis. In the Federal
Reserve’s analysis, Board staff noted that if the systemic risk exception
were invoked, a resolution method could be applied that would avoid all
or most of the adverse impacts discussed above. In particular, if all
uninsured depositors were largely or fully protected, the adverse effects
would be substantially mitigated. The analysis noted that extending only
partial protection to uninsured depositors would have some beneficial
Decision to Insure All
Uninsured Deposits at the
Two Banks Sought to
Avert Financial Contagion
and Negative Impact on
Broader Economy
Page 31 GAO-23-106736 2023 Failed Banks
effect, but allowing material losses on these uninsured deposits still would
result in significant adverse effects in the financial markets.
Federal Reserve Board staff also indicated that by authorizing FDIC to
protect the uninsured deposits of these banks, the Deposit Insurance
Fund would incur some losses. The staff acknowledged at the time that
the size of these losses was unknown, as was the potential impact of
such losses on FDIC’s resources. They added that FDIC would have to
recover any losses incurred as a result of the systemic risk exception
through one or more special assessments (as described earlier in this
report).
Furthermore, staff raised concerns about exacerbating moral hazard and
potentially weakening the market discipline of many depository
institutions. As a prior GAO report noted, regulators’ use of the systemic
risk exception may weaken market participants’ incentives to properly
manage risk if they come to expect similar emergency actions in the
future.
42
We plan to further examine these and other issues related to the
use of the exception in an upcoming GAO review (we must report to
Congress on each systemic risk determination made by the Secretary of
the Treasury).
43
42
GAO, Federal Deposit Insurance Act: Regulators’ Use of Systemic Risk Exception
Raises Moral Hazard Concerns and Opportunities Exist to Clarify Provisions, GAO-10-100
(Washington, D.C.: Apr. 15, 2010).
43
12 U.S.C. § 1823(c)(4)(G)(iv).
Page 32 GAO-23-106736 2023 Failed Banks
After SVB’s failure on March 10th, the Federal Reserve determined the
need to establish an emergency lending facility to boost operating banks’
liquidity and minimize contagion. According to Treasury staff,
deliberations about the lending facility and the systemic risk exception
occurred in parallel. The proposed Bank Term Funding Program would
allow the 12 Reserve Banks to make loans of up to 1 year to eligible U.S.
depository institutions or U.S. branches or agencies of foreign banks (see
sidebar). In a March 12th memorandum to the Board of Governors,
Federal Reserve staff documented the necessity and appropriateness of
the program. Specifically, they determined in the memorandum that the
following requirements for an emergency lending facility under Section
13(3) of the Federal Reserve Act were met:
• Unusual and exigent circumstances. Federal Reserve staff noted
that the run on SVB and its subsequent failure caused contagion that
spread to Signature Bank and led to substantial deposit outflows at
other similar banks. In turn, these conditions put considerable
pressure on the Deposit Insurance Fund.
• Broad-based eligibility. The BTFP would be designed to provide
liquidity to all U.S. federally regulated depository institutions.
• Protection of taxpayers from losses. Loans under the BTFP would
be secured by any collateral eligible for Federal Reserve purchase in
open market operations, provided the borrower owned the collateral
as of March 12, 2023. Such collateral consists of U.S. Treasuries,
agency securities, and agency mortgage-backed securities, which
have a low risk of credit loss. Federal Reserve staff noted that the
opportunity for recourse to the borrower and the credit protection
provided by Treasury would further mitigate the risk of loss. Federal
Reserve staff conducted scenario analyses and concluded that even
under an extremely severe scenario featuring widespread defaults,
with the Treasury backstop, the Federal Reserve would not incur
losses and taxpayers would be adequately protected from losses.
Federal Reserve
Considered Economic
and Statutory Factors
in Establishing the
Bank Term Funding
Program
Federal Reserve
Determined Conditions
Met Statutory
Requirements to Establish
Bank Term Funding
Program
Page 33 GAO-23-106736 2023 Failed Banks
• Lack of adequate credit accommodations from other banking
institutions. Federal Reserve staff noted that multiple, sizable
federally regulated U.S. depository institutions had faced or were
facing fatal runs with respect to uninsured deposit liabilities and were
unable to meet their outflows on a daily basis. Furthermore, they cited
the panic SVB created when it attempted to raise a large amount of
equity capital on March 9th. They stated that in the current
environment, such routine capital-raising methods might not be
available to banks without creating more contagion.
• Not insolvent borrower. Participants in the program must be eligible
for primary credit (discount window borrowing) under Regulation A,
which limits participants to those that, in the judgment of the relevant
Federal Reserve Bank, are in generally sound financial condition.
Federal Reserve staff noted that under current guidelines, this
generally requires depository institutions to be adequately or well
capitalized.
• Penalty rate. The interest rate for loans under the program would be
set to the overnight index swap rate, plus 10 basis points. According
to Federal Reserve staff, this rate is likely well above the rate banks
pay on at-risk deposits, thus providing borrowers strong incentive to
maintain and expand their deposit franchise as a source of funding.
Treasury approved the BTFP and pledged $25 billion in assets from the
Exchange Stabilization Fund to protect against potential future program
Terms and Conditions of the Bank Term
Funding Program
Eligible borrowers: Any U.S. federally
insured depository institution (including a
bank, savings association, or credit union) or
U.S. branch or agency of a foreign bank that
is eligible for primary credit
Eligible collateral: Includes any collateral
eligible for purchase by Federal Reserve
Banks in open market operations, provided
that such collateral was owned by the
borrower as of March 12, 2023
Advance size: Limited to the value of eligible
collateral pledged by the eligible borrower
Rate: The one-year overnight index swap rate
plus 10 basis points; fixed for the term of the
advance on the day the advance is made
Collateral valuation: Par value; margin at
100 percent of par value
Prepayment: Prepayment allowed (including
for purposes of refinancing) at any time
without penalty
Advance term: Up to 1 year
Fees: None
Credit protection to Federal Reserve
Banks: $25 billion from the Department of the
Treasury’s Exchange Stabilization Fund
Recourse: Advances made with recourse
beyond the pledged collateral to the eligible
borrower
Program duration: Requests for advances
allowed until at least March 11, 2024
Source: Board of Governors of the Federal Reserve System.
| GAO-23-106736
Treasury Approved and
Backstopped BTFP
Page 34 GAO-23-106736 2023 Failed Banks
losses.
44
In a memorandum to the Secretary of the Treasury regarding
the $25 billion backstop, Treasury staff stated that providing more
certainty to the market that banks would be able to cover deposit
withdrawals without realizing immediate losses on their balance sheets
should help prevent broader runs on uninsured deposits. They further
noted that the Treasury backstop could be viewed as consistent with the
legal uses of the Exchange Stabilization Fund aimed at currency stability
and broader financial stability goals. Treasury staff specified that the
potential run risk on uninsured deposits presented a broader financial
stability question, rather than an issue limited to a small number of
regional banks.
As of April 19, 2023, the outstanding amount of advances under the
BTFP was approximately $74 billion. This figure represented a slight
increase from the previous week’s total outstanding amount of about $72
billion. However, it was an overall decrease from the high of $79 billion on
April 5, 2023, indicating that some borrowers were paying back their
BTFP loans. The total value of the collateral pledged to secure
outstanding advances was approximately $102 billion as of April 19,
according to Federal Reserve staff.
Depository institutions also borrowed through the Federal Reserve’s
discount window. As of April 19, 2023, the outstanding amount of loans
through the discount window’s primary credit program was approximately
$70 billion.
45
Primary credit borrowing declined from a high of about $153
billion as of March 15, 2023, indicating that borrowers were paying back
these loans as well. The discount window offers shorter-term loans than
44
The Exchange Stabilization Fund was originally established in the 1930s to stabilize the
exchange value of the dollar by buying and selling foreign currencies and gold. The
Secretary of the Treasury has broad authority to use the stabilization fund to deal in gold,
foreign exchange, and other instruments of credit and securities. Prior to 2008, Treasury
primarily used the fund for foreign exchange market intervention and short-term credit
operations. In 2008, Treasury used the stabilization fund to guarantee certain money
market mutual funds. The fund retains earnings from its operations and had a portfolio
asset value of $94 billion in February 2020. In March 2020, Treasury used the fund to
support Federal Reserve emergency lending facilities created in response to COVID-19.
When the CARES Act was enacted later in the same month, it made available at least
$454 billion (and, according to Treasury, up to $500 billion, taking into account any
unused funds from other enumerated CARES Act programs) to the Exchange Stabilization
Fund for this purpose.
45
The primary credit program serves as the principal safety mechanism for ensuring
adequate liquidity in the banking system and is available to depository institutions that are
in generally sound financial condition, with no restrictions on the use of borrowed funds.
Banks Had Borrowed
about $79 Billion Total
through the Bank Term
Funding Program
Page 35 GAO-23-106736 2023 Failed Banks
the BTFP (maximum term of 90 days vs. 1 year). On March 12, 2023, the
Federal Reserve announced it would apply the same 100 percent
margins used for securities eligible for the BTFP. Prior to this
announcement, the discount window had applied margins ranging from
92 to 99 percent on these types of collateral.
As noted above, the Dodd-Frank Wall Street Reform and Consumer
Protection Act provided GAO the authority to study credit facilities
authorized by the Federal Reserve Board under section 13(3) of the
Federal Reserve Act.
46
We plan to further study the Bank Term Funding
Program in future work.
We provided a draft of this report to FDIC, the Federal Reserve, and
Treasury for review and comment. FDIC, the Federal Reserve, and
Treasury provided technical comments that we incorporated as
appropriate. The agencies did not provide formal comments.
We are sending copies of this report to the appropriate congressional
committees, the Chairman of the Board of Directors of the Federal
Deposit Insurance Corporation, Chair of the Board of Governors of the
Federal Reserve System, the Secretary of the Treasury, and interested
parties. In addition, this report is available at no charge on the GAO
website at http://www.gao.gov.
If you or your staff members have any questions about this report, please
contact me at (202) 512-8678 or [email protected]. Contact points for
our Office of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributors to this
report are listed in appendix IV.
Michael E. Clements
Director, Financial Markets and Community Investment
46
31 U.S.C. § 714(f).
Agency Comments
Appendix I: Status of Resolution Plans for
Silicon Valley Bank and Signature Bank
Page 36 GAO-23-106736 2023 Failed Banks
In recent years, requirements for resolution plans were either under
revision or paused. In 2012, the Federal Deposit Insurance Corporation
(FDIC) promulgated a final rule requiring covered insured depository
institutions with $50 billion or more in total assets (CIDI) to periodically
submit resolution plans to FDIC.
1
The Insured Depository Institution Rule
(IDI Rule), was established to facilitate FDIC’s readiness to resolve such
institutions under the Federal Deposit Insurance Act (FDI Act).
In November 2018, FDIC announced that the agency planned to revise
the IDI Rule and that the next round of resolution plans submitted
pursuant to the IDI Rule would not be required until the rulemaking
process was complete. In April 2019, the FDIC Board approved an
advance notice of proposed rulemaking to seek comments on potential
modifications to the IDI Rule, including creating a tiered plan requirement
or revisions to frequency. The Board also adopted a resolution extending
the due date for future plan submissions pending completion of the
rulemaking process.
In January 2021, FDIC issued a policy statement lifting the moratorium
and noted that it would resume resolution plan requirements for insured
depository institutions with $100 billion or more in total consolidated
assets. On June 25, 2021, FDIC issued a statement with a modified
approach for resolution plan requirements for such institutions.
2
FDIC
outlined a modified approach to implementing its rule, extending the
submission frequency to a 3-year cycle, streamlining content
requirements, and placing enhanced emphasis on engagement with
firms.
In accordance with the lifting of the moratorium and modified approach,
resolution plans for Silicon Valley Bank (SVB) and Signature Bank either
were under review at the time of failure or had not been submitted.
SVB submitted its first resolution plan on December 1, 2022. (SVB had
exceeded $100 billion in total assets in 2021.) According to FDIC staff,
they were still reviewing the plan at the time of the bank’s closing. They
told us that their reviews of resolution plans typically take 5–6 months.
1
Resolution Plans Required for Insured Depository Institutions with $50 Billion or More in
Total Assets, 77 Fed. Reg. 3075 (Jan. 23, 2012).
2
Federal Deposit Insurance Corporation, Statement of Resolution Plan for Insured
Depository Institutions (Washington, D.C.: June 25, 2021).
Appendix I: Status of Resolution Plans for
Silicon Valley Bank and Signature Bank
Appendix I: Status of Resolution Plans for
Silicon Valley Bank and Signature Bank
Page 37 GAO-23-106736 2023 Failed Banks
The staff said they would have presented the SVB review to the Board for
approval and issued formal feedback to the bank.
According to FDIC officials, their preliminary findings were that the bank’s
initial resolution plan was not thorough. For example, according to FDIC
staff, the resolution plan did not list potential acquirers for a whole bank
purchase, specific portfolios, and franchise components. The plan did not
detail crisis communication, liquidity needs, liquidity resources, or
processes for determining liquidity drivers.
Signature Bank was scheduled to submit its resolution plan in June 2023.
It exceeded $100 billion in total assets in 2021 and therefore had no plan
on file when it failed. FDIC officials said that they conducted a pre-filing
meeting on April 26, 2022, which is typical for first-time filers.
Appendix II: Timeline of Key FDIC Actions
Associated with Silicon Valley Bank and
Signature Bank Receivership
Page 38 GAO-23-106736 2023 Failed Banks
Table 8: Key Actions Associated with FDIC Receivership of Silicon Valley Bank and Signature Bank, March 9–13, 2023
Date
Silicon Valley Bank
Signature Bank
March 9
•
Notification (internal) to FDIC Division of Resolutions and
Receiverships and Division of Complex Institution Supervision
and Resolution, of possible failure of SVB.
March 10
•
SVB was closed by the California Department of Financial
Protection and Innovation, which appointed FDIC as receiver
(11:15 a.m.). FDIC created the Deposit Insurance National Bank
of Santa Clara. At the time of SVB’s closing, FDIC transferred all
insured deposits to the new bank.
• FDIC announced its intent to provide uninsured depositors with
an advanced dividend against their claims for the uninsured
amounts of their deposits as soon as March 13 when the Deposit
Insurance National Bank of Santa Clara was scheduled to open.
• Email notice sent to a financial institution with invitation to FDIC
virtual data room to view SVB documents for due diligence.
• FDIC created potential bidder list with 24 bidders for initial
marketing of Deposit Insurance National Bank of Santa Clara.
•
Notification (internal) to FDIC
Division of Resolutions and
Receiverships and Division of
Complex Institution Supervision
and Resolution, of possible failure
of Signature Bank.
March 11
•
FDIC initiated marketing process (8:15 p.m.).
• Email notice sent to regulatory and FDIC contacts announcing
the start of a marketing initiative for Deposit Insurance National
Bank of Santa Clara.
• Email notice sent to potential bidders announcing acquisition
opportunity along with an invitation to FDIC virtual data room.
• Bid form and transaction fact sheet made available.
•
Internal discussions between
Division of Risk Management
Supervision, Division of
Resolutions and Receiverships,
and Division of Complex Institution
Supervision and Resolution of
possible failure of Signature Bank.
March 12
•
Notice sent to supervisors of banks expected to submit bids
requesting clearance.
• Bids due 2:30 p.m. CDT.
• As bids for SVB were being evaluated, the systemic risk
determination was made. Secretary Yellen approved actions
enabling FDIC to complete its resolution of SVB and Signature
Bank in a manner that fully protected all depositors.
• To enable bidders to have an opportunity to bid on an all deposit
transactions, FDIC reset the marketing window. (Bids received
were based on an insured deposits-only basis before the
systemic risk determination.)
• FDIC filed an application with the Office of the Comptroller of the
Currency to establish Silicon Valley Bridge Bank, N.A.
• FDIC transferred all deposits and substantially all assets of the
former SVB to a newly created, full-service FDIC-operated
“bridge bank” in an action designed to protect all depositors of
SVB. Depositors and borrowers of SVB automatically became
customers of the new bridge bank.
•
Signature Bank was closed by the
New York State Department of
Financial Services, which
appointed FDIC as receiver.
• FDIC filed an application with the
Office of the Comptroller of the
Currency to establish Signature
Bridge Bank, N.A. and FDIC
transferred substantially all of the
assets and liabilities of Signature
Bank to Signature Bridge Bank,
N.A., and marketed such assets
and deposits to potential bidders.
Depositors and borrowers of
Signature Bank automatically
became customers of the new
bridge bank.
March 13
•
SVB Bridge Bank opened and conducted normal business
activities.
•
Signature Bridge Bank opened
and conducted normal business
activities.
Legend: FDIC = Federal Deposit Insurance Corporation; SVB = Silicon Valley Bank
Source: GAO analysis of FDIC information. | GAO-23-106736
Appendix II: Timeline of Key FDIC Actions
Associated with Silicon Valley Bank and
Signature Bank Receivership
Appendix III: Timeline of Key Actions to Invoke
Systemic Risk Exception for Silicon Valley
Bank and Signature Bank
Page 39 GAO-23-106736 2023 Failed Banks
Table 9: Key Actions Associated with Invoking Systemic Risk Exception for Silicon Valley Bank and Signature Bank, March 9–
13, 2023
Date
Action
March 9
•
As SVB was failing that evening, principals of Treasury, FDIC, and Federal Reserve began
having informal conversations about whether there might be systemic consequences to SVB’s
failure.
March 10
•
Secretary of the Treasury and leaders from FDIC, the Federal Reserve, and Office of the
Comptroller of the Currency gathered to discuss developments around SVB.
March 11
•
FDIC and Federal Reserve staff started coordinating efforts to consider recommending the
systemic risk exception.
• Federal Reserve Board staff at the direction of the Vice Chairman of Supervision started
preparing a draft memorandum to recommend the systemic risk exception.
March 12
•
FDIC and Federal Reserve continued to coordinate efforts and exchange drafts of the
recommendation memorandum and analysis.
• Treasury coordinated with FDIC, the Federal Reserve, and the White House, and Secretary of
the Treasury consulted with the President.
(10:30 a.m.)
•
In a media interview with CBS News, Secretary of the Treasury said that she had been working
with regulators all weekend to design appropriate policies to address the concerns of
depositors and that Treasury was not considering bailouts of investors and owners of SVB and
Signature Bank.
(1:30 p.m.)
•
Federal Reserve Board held meeting to approve staff memorandum recommending systemic
risk exception.
(5:00–5:20 p.m.)
•
FDIC Board of Directors approved resolution recommending systemic risk exception.
(4:00–5:45 p.m.)
•
Treasury received written recommendations from the Federal Reserve Board and the FDIC
Board recommending systemic risk exception.
(5:56 p.m.)
•
Secretary of the Treasury approved systemic risk exception determinations for SVB and
Signature Bank.
(6:15 p.m.)
•
Secretary of the Treasury, FDIC, and Federal Reserve made a public announcement of the
authorization of systemic risk exception.
• Federal Reserve announced establishment of the Bank Term Funding Program.
(7:30 p.m.)
•
Financial Stability Oversight Council held a meeting in which Treasury, FDIC, and Federal
Reserve described their actions in invoking systemic risk exception to insure all depositors of
SVB and Signature Bank. Council also discussed the Bank Term Funding Program.
March 13
•
Treasury sent letters to Congress to notify relevant committees of the systemic risk
determinations.
Legend: FDIC = Federal Deposit Insurance Corporation; Federal Reserve = Board of Governors of the Federal Reserve System; SVB = Silicon Valley
Bank
Source: GAO analysis of Treasury, FDIC, and Federal Reserve information. | GAO-23-106736
Appendix III: Timeline of Key Actions to
Invoke Systemic Risk Exception for Silicon
Valley Bank and Signature Bank
Appendix IV: GAO Contact and Staff
Acknowledgments
Page 40 GAO-23-106736 2023 Failed Banks
In addition to the contact named above, Karen Tremba (Assistant
Director), Lisa Reynolds (Analyst in Charge), Aaron Colsher, Rachel
DeMarcus, Risto Laboski, Akiko Ohnuma, Barbara Roesmann, Jessica
Sandler, and Jena Sinkfield made key contributions to this report.
Appendix IV: GAO Contact and Staff
Acknowledgments
GAO Contact
Staff
Acknowledgements
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