SVB’s Lack of Risk Officer Emerges as Focus in Fed Probe

Silicon Valley Bank’s lack of a chief risk officer for much of last year is being examined by the Federal Reserve as part of its probe of the bank’s failure.

Source: Bloomberg | Published on March 15, 2023

SVB investigation

Silicon Valley Bank’s lack of a chief risk officer for much of last year is being examined by the Federal Reserve as part of its probe of the bank’s failure, two people familiar with the matter said.

SVB revealed in a 2023 proxy statement that Chief Risk Officer Laura Izurieta left the company in October but stopped performing the role in April. The company said Kim Olson took over the job in December. Olson is based in New York, across the country from most of the rest of SVB’s top brass.

The San Francisco Fed was the chief regulator for SVB before it fell into Federal Deposit Insurance Corp. receivership on Friday in the biggest bank failure in more than a decade. The Fed, which declined to comment on Tuesday, has said that it will conduct an internal investigation of its oversight and publicly release the results on May 1.

“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve,” Fed Chair Jerome Powell said in a Monday statement. The collapse of SVB is also being investigated by the Securities and Exchange Commission and the Justice Department.

The vacancy in the key post has also drawn the attention of lawyers who are circling SVB with an eye on bringing suits on behalf of shareholders. The first such lawsuit was filed on Monday in San Francisco.

Reed Kathrein, a lawyer who specializes in shareholder suits, said the lack of a CRO is more notable given the frequency with which the SVB board’s risk committee was meeting.

“You have to wonder whether or not the risk officer raised the risks that they ran into half a year ago,” he said. The departure, especially without someone else in line as an immediate replacement indicates a possible disagreement with management “over the risks they were taking or their disclosures of risk,” said Kathrein.

“It means perhaps management was hiding something or didn’t want to disclose something, or had disagreements over the risks it was taking,” he added.

According to its March 3 proxy statement, SVB initiated discussions about Izurieta’s departure from the bank in early 2022. According to a separation agreement, she exited her role in April 29 with a package paying her around $2 million for her 2022 work and nearly $460,000 in severance.

William Hill, a Miami-based banking lawyer, said the absence of a risk officer could prove viable grounds for legal claims.

Before joining SVB, Olson was chief US risk officer for Sumitomo Mitsui Banking Corp.

“The legal issue will be whether a bank of this size and in this particular segment of the market would usually have a risk officer and if that’s unusual and outside of the norm,” Hill said. “If most other banks in this circumstance would have a risk officer and this bank didn’t have one, that could be a breach of the duty of care.”

 

 

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