On September 29, the Fed released a report from the Office of Inspector General with the results of a review of the Fed’s supervision of Silicon Valley Bank in the wake of that bank’s failure earlier this year. The report states, “With the benefit of hindsight … we noted multiple instances in which the Board and [the Federal Reserve Bank of San Francisco] should have acted earlier or taken stronger action to address identified weaknesses at SVB.” The report reiterated some findings already released in April that we previously reported, which led to the Fed acting more aggressively regarding banks addressing problems identified during regulatory reviews. This has already resulted in the issuance of MRAs and MRIAs to a number of banks (details can be found here).
What we found most interesting about the Inspector General’s Office report was that it went further than the April report by stating that they “should have acted earlier or taken stronger action to address identified weaknesses at SVB. Specifically, we identified several instances in which the Board and FRB San Francisco should have downgraded the bank’s CAMELS ratings.” Please see our series of articles on The Six Pillars of Safety and Soundness for details regarding CAMELS ratings, why they are a critical measure of a bank’s financial condition, the potential ramifications of low ratings, and our recommendations for assessing your bank’s CAMELS ratings.
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We expect that bank regulators will be increasing their scrutiny of CAMELS ratings because of this report, and banks should not hesitate to perform a thorough review of the factors that determine their CAMELS ratings to avoid unpleasant surprises during a regulatory review.
Contact us to learn how a strategic partnership with Doran Jones can provide you with cost-effective solutions by leveraging our expertise with these and other critical risk and compliance functions.