Silicon Valley Bank was chartered by the State of California and was subject to the supervision of the California Department of Financial Protection & Innovation. The DFPI was not the bank's regulator. The bank had adopted a bank holding company structure and elected financial holding company status. Thus, the bank's holding company, SVB Financial Group, was subject to primary regulation, supervision, and examination by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The bank was subject to supervision and examination by the Federal Reserve and the DFPI. But wait, there's more. The bank was also required to meet the requirements of the Federal Deposit Insurance Corporation which insured the bank's deposits (to the limited extent provided by law). The bank's activities were also subject to oversight by the Consumer Financial Protection Bureau. But wait, there's even more, the holding company and its non-bank was also subject to regulation by the Securities and Exchange Commission as well as at least two self-regulatory organizations - the Financial Industry Regulatory Authority, Inc. and The Nasdaq Stock Market LLC.
An obvious question is whether any in this alphabet soup of regulators (DFPI, FRB, FDIC, CFPB, FINRA and Nasdaq) fell down on the job. The DFPI at least has committed itself to some introspection. On Monday, it announced:
“The Department of Financial Protection and Innovation is conducting a comprehensive review of the department’s oversight and regulation of Silicon Valley Bank and will issue a report by early May 2023. Through this review, we will examine how we can strengthen and update our system of financial regulation to meet emerging and evolving challenges.”
Self-assessments are difficult as there is a natural tendency to defend, deflect and deny. I look forward to reading the DFPI's report, which may have significant implications for the future of dual banking system of federal and state charters in the United States.