Key facts
- Trump allies are considering whether a review of the Silicon Valley Bank (SVB) failure could be used to remove Fed Governor Michael Barr.
- Barr served as the Federal Reserve's Vice Chair for Supervision when SVB collapsed in March 2023.
- The SVB failure was linked to the bank's ineffective risk management and inadequate supervision by the Fed.
- Previous reviews, including one led by Barr and a Fed Office of Inspector General report, identified these issues.
- The 2018 EGRRCPA and a subsequent Fed tailoring rule are noted as contributing factors to reduced supervisory standards.
Allies of Donald Trump are reportedly exploring the possibility of using an external review of the 2023 Silicon Valley Bank (SVB) failure as a political tool to remove Federal Reserve Governor Michael Barr. Barr, who served as the Fed's top banking supervisor at the time of SVB's collapse, is facing scrutiny over the central bank's oversight failures.
The SVB failure, along with those of Signature Bank and First Republic Bank, resulted in nearly half a trillion dollars in lost wealth. While the causes are widely understood to involve poor risk management and inattentive supervision, some Trump allies are reportedly seeking a new angle to challenge Barr's position.
Previous assessments, including a self-assessment ordered by Barr himself and a subsequent review by the Fed's Office of Inspector General, identified key factors contributing to SVB's demise. These included the bank's ineffective risk management, the Fed supervisors' failure to adequately assess the bank's vulnerabilities and ensure prompt correction of weaknesses, and a general reduction in supervisory standards following the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) and the Fed's 2019 tailoring rule. These regulatory changes raised the asset threshold for enhanced prudential standards, effectively reducing the intensity of oversight for banks like SVB, which had grown significantly in assets but remained below the new $100 billion threshold.
Concerns have also been raised that current Fed leadership, such as Vice Chair for Supervision Michelle Bowman, may be attempting to downplay the lessons learned from the crisis by calling for fresh reviews, potentially setting the stage for future instability.