SVB collapse: BlackRock reportedly warned of ‘weak’ risk controls last year

Silicon Valley Bank (SVB) was warned early last year by BlackRock’s consulting arm that its risk controls were “substantially below” other lenders, according to the Financial Times. More than two years before its collapse, SVB hired BlackRock’s Financial Markets Advisory Group to analyze the potential impact of various risks on its securities portfolio. The consulting firm was also tasked with examining the risk systems, processes, and people in its treasury department that managed the investments.

BlackRock’s final report, commissioned in October 2020 and submitted in January 2022, gave SVB a “gentleman’s C” — a passing academic grade given to an otherwise failing student. The bank was found to lag behind similar institutions on 11 of 11 factors, performing “substantially below” them on 10 out of 11.

The consultants alleged that the bank was unable to generate real-time or even weekly updates on the status of its securities portfolio. SVB executives took in the criticism but declined BlackRock’s offer to do additional work.

Last Friday, banking regulators shut down SVB, the nation’s 16th largest federally insured bank. Two days earlier, the bank had announced that it needed to raise more than $2.2 billion to remain solvent, which caused its stock price to plummet over 60% in 48 hours. Signature Bank was also closed the following Sunday, and customers of both banks will be made whole.

First Republic Bank, a regional bank, and Credit Suisse, a Swiss lender, were among several institutions that faced a week of uncertainty amid the collapses, with the former accepting a rescue package from larger institutions to shore up their liquidity.

The White House has called on Congress to strengthen regulations to prevent a collapse of smaller banks, but Democrats are divided while Republicans are united against it.