FRBNY GC Draws Lessons from SVB/Signature Failures

Federal Reserve Bank of New York ("FRBNY") General Counsel and Head of Legal Group Richard Ostrander described lessons learned from the failures of Signature Bank and Silicon Valley Bank ("SVB").

In remarks before the Paris Meeting of the Committee on International Monetary Law of the International Law Association, Mr. Ostrander highlighted:

• Liquidity Preparedness. Mr. Ostrander recommended banks of all sizes identify "multidimensional, regularly tested funding sources." He said that the Signature Bank failure demonstrated that relying on a single source of credit poses too great a risk of borrowers being unable to generate enough liquidity from their investment positions in a short that bank management (i) assess their operational preparedness prior to a liquidity crisis, (ii) conduct tabletop exercises to identify gaps in their capabilities and (iii) re-examine requirements to access the discount window, which he said offers the "most reliable source of liquidity in a crisis."
• Supervision. Mr. Ostrander pointed to SVB’s general downplaying of supervisory findings and "complacent" management style as an opportunity for supervisors to "assess how [they] issue and monitor supervisory findings" and to "employ extraordinary remedies when risk management deficiencies threaten a firm’s safety and soundness." Furthermore, if supervisory findings are not addressed by a bank’s management, Mr. Ostrander stated that supervisors must follow through with requiring remediation.
• Effective Challenge in Corporate Governance. Mr. Ostrander highlighted the absence of a chief risk officer at SVB, who, he said, could have challenged the risks taken on by SVB for the sake of promoting growth and focusing on risk management practices. Mr. Ostrander said that SVB provides a lesson for banks to "not undervalue effective challenge and the individuals who provide it."