Federal Reserve Vice Chair Michael Barr to Testify on Mismanagement of Silicon Valley Bank and Signature Bank, Causing $20.5 Billion in Losses

Two major banks, Silicon Valley Bank (SVB) and Signature Bank, have failed due to mismanagement and a sudden panic among depositors, according to Federal Reserve Vice Chair for Supervision Michael Barr.

Barr is expected to testify before the Senate Banking Committee on Tuesday, and his prepared testimony released on Monday details how SVB leadership failed to effectively manage interest rate and liquidity risk.

“SVB’s failure is a textbook case of mismanagement,” Barr says in his testimony.

The Federal Deposit Insurance Corporation (FDIC) was appointed to manage both banks after their collapse. Chairman Martin Gruenberg is also expected to testify before the Senate Banking Committee on Tuesday, and he estimates that the failure of SVB will require about $18 billion to cover uninsured deposits, while the failure of Signature Bank will require about $2.5 billion, including $1.6 billion to cover its uninsured deposits.

Gruenberg cautions that these estimates are subject to significant uncertainty and are likely to change, depending on the ultimate value realized from each receivership. He also says that the bank waited too long to address its problems, and the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank’s failure.