Shearman & Sterling LLP 45 | SVB Fallout: Banks Face Heightened Corporate Governance and Risk Management Scrutiny
The failures of Silicon Valley Bank (SVB), Signature
Bank and First Republic Bank—the second, third,
and fourth largest bank failures in U.S. history—have
dramatically changed the regulatory climate in which
banks operate. Reports by the Federal Reserve,
the Federal Deposit Insurance Corporation (FDIC),
and the New York State Department of Financial
Services (NYDFS) have exposed a number of areas
of supervisory concern. Much attention has been on
the "constellation of factors" that have contributed to
recent bank failures: the sharpest rise in interest rates
in 40 years; rapid asset and deposit growth; depositor
base concentration; the sluggish pace of bank
examiners in issuing downgrades; recent statutory
and policy changes that placed a greater emphasis
on reducing, or "tailoring," compliance burdens on
regional banks and the interplay of social media and
deposit outflows, among others. But governance and
risk management practices of banks, particularly
regional and mid-size banks, are now under the most
intense focus—and the banking agencies are motivated
to pursue weaknesses in these areas.
POST-MORTEM REPORTS ON RECENT BANK FAILURES
EXPOSE TWO MAIN AREAS OF CONCERN
Since the recent bank failures, several reports have
been published by regulators and other governmental
bodies. These include:
• Federal Reserve Vice Chair for Supervision
Michael Barr's report on the supervision and
regulation of SVB
1
• NYDFS's internal review report on the supervision
and closure of Signature Bank
2
• FDIC's report on the supervision of Signature Bank
3
• Government Accountability Office's preliminary
review of agency actions related to the March 2023
bank failures
4
• California Department of Financial Protection
and Innovation's oversight and regulation of SVB
5
• FDIC's report on the supervision of
First Republic Bank
6
• Office of the Inspector General of the Federal
Reserve's material loss review of SVB
7
While the post-mortem reports vary in purpose and
scope, they are collectively useful in inventorying
the myriad factors that caused or contributed to the
recent failures, and to identify where the banking
agencies will be looking. Corporate governance and
risk management practices stand out as the most
significant factors and are now front-of-mind for
regulators in the post-SVB environment.
1
See Federal Reserve Vice Chair for Supervision Michael Barr, "SVB
Report," https://www.federalreserve.gov/publications/files/svb-
review-20230428.pdf (April 28, 2023).
2
See NYDFS, "Internal Review of The Supervision and Closure
of Signature Bank," https://www.dfs.ny.gov/system/files/
documents/2023/04/nydfs_internal_review_rpt_signature_
bank_20230428.pdf (April 28, 2023).
3
See FDIC, "FDIC's Supervision of Signature Bank," https://www.fdic.
gov/news/press-releases/2023/pr23033a.pdf (April 28, 2023).
4
See GAO, "Preliminary Review of Agency Actions Related to March
2023 Bank Failures," https://www.gao.gov/assets/gao-23-106736.pdf
(April 28, 2023).
5
See California DFPI, "Review of DFPI's Oversight and Regulation
of Silicon Valley Bank," https://dfpi.ca.gov/wp-content/uploads/
sites/337/2023/05/Review-of-DFPIs-Oversight-and-Regulation-of-
Silicon-Valley-Bank.pdf (May 8, 2023).
6
See FDIC, "FDIC's Supervision of First Republic Bank," https://www.
fdic.gov/news/press-releases/2023/pr23073a.pdf (September 8,
2023).
7
See OIG-Federal Reserve, "Material Loss Review of SVB," https://oig.
federalreserve.gov/reports/board-material-loss-review-silicon-valley-
bank-sep2023.pdf (September 25, 2023).
SVB Fallout: Banks Face
Heightened Corporate Governance
and Risk Management Scrutiny
Mark Chorazak
Insights
