Fed regulators sat on Silicon Valley Bank flaws for fear of being wrong, report finds

Jennifer Schonberger · Senior Reporter Fri, September 18, 2026 at 8:43 AM PDT · 3 min read

More than 3.5 years after the failure of Silicon Valley Bank, an independent third-party report has found that social media did not fuel a run on the regional bank's deposits — and that regulators knew about its vulnerabilities but did not act for fear of being wrong.

In a report commissioned by Michelle Bowman, the Federal Reserve's vice chair of supervision, the Starling Advisory Group review described how a paralyzed culture of risk aversion allowed the second-largest bank failure in US history to happen in slow motion. Despite spotting Silicon Valley Bank's fatal vulnerabilities a full year before its demise, watchdogs chose inaction over the professional risk of making an imperfect call.

Background on the Collapse

Silicon Valley Bank collapsed on March 10, 2023, triggered by a run that forced federal regulators to seize the institution. The bank primarily served tech startups, venture capital firms, and healthcare companies, which parked significant cash deposits there.

Using money it did not lend out, Silicon Valley Bank bought billions of dollars' worth of long-term US Treasury bonds and mortgage-backed securities when interest rates were near zero, locking itself into very low-yielding returns.

When the Fed aggressively raised rates throughout 2022 and into 2023, Silicon Valley Bank was sitting on massive losses in its bond holdings. As rates rose, clients began pulling money out of the bank to cover their own expenses. The bank was forced to sell its bond portfolio at a loss to meet redemptions and announced it would raise capital to meet further obligations. That spooked depositors, prompting them to withdraw funds.

Key Findings from the Report

• Regulators knew early: Fed supervisory staff knew or should have known about these vulnerabilities as early as March 2022.
• No decisive action: Despite this knowledge, supervisory staff did not take prompt and decisive action to encourage or require Silicon Valley Bank to reduce its interest rate risk or concentration of vulnerabilities.
• Culture of risk aversion: A significant factor contributing to supervisory inaction was a long-standing culture of risk aversion. Staffers believed it was personally safer to take no action unless they were certain it was exactly right.
• Unclear decision rights: A lack of clarity regarding who could provide certainty that a particular action was correct compounded this culture of risk aversion.

Response from the Fed

"We are addressing the culture problem head-on," Bowman said. "The review revealed that too many staff members feel it is personally safer to take no action than to risk taking the wrong action."

Going forward, Bowman said examination teams will submit monthly reports directly to the heads of supervision and their respective reserve banks. These reports will identify any supervisory issue or concern in which an examiner was uncertain.

"The American people deserve a banking system that is safe, sound, and resilient," Bowman said. "They deserve supervision that is tough, timely, and forward-looking."

Read more: How Silicon Valley Bank skirted Washington's toughest banking rules