Yesterday, the California Department of Financial Protection & Innovation published a 74-page report on its oversight and regulation of Silicon Valley Bank. As explained in this earlier post, the bank was a state chartered bank but the DFPI was not the bank's only regulator. As the report explains, the DFPI shared supervision with federal banking regulators, primarily the Federal Deposit Insurance Corporation and the Federal Reserve. Silicon Valley Bank, moreover, was a subsidiary of a bank holding company which the DFPI did not directly regulate.
Here are some of the points that I found most interesting in the DFPI's report:
- One day after issuing a press release announcing a plan to raise $2.25 billion by selling a mix of common and preferred stock, Silicon Valley Bank "experienced a $42 billion single day outflow".
- The $42 billion outflow set a new record for short-term outflows, eclipsing an outflow of $16.7 billion over 10 days experienced by Washington Mutual in 2008.
- The Federal Reserve Bank of San Francisco "took the lead role in the examination of issues regarding SVB's liquidity with a particular focus on Liquidity Risk Management." (footnote omitted). According to the DFPI, the FRSB examiners "found that SVB's liquidity positions were considered adequate in Q1 2023, but modeling forecast showed potential issues at the three-months mark. SVB had sufficient liquidity to handle a $16 billion single day outflow."
- The DFPI "believes that social media and digital banking technology pose new systemic risks to financial institutions." (footnote omitted).
- At the end of last year, Silicon Valley Bank's uninsured deposits constituted 93.8% of its total deposits. This was the highest ratio of any U.S. Bank with $50 billion or more in total assets at December 31, 2022. Among the five largest California banks by asset size, the bank with next highest percentage (67.7%) was First Republic Bank.
The DFPI's report provides a good primer on bank regulation and the dual charter banking system.