The Federal Reserve has concluded that Silicon Valley Bank’s board and management failed to manage its risks, and that supervisors did not fully appreciate its vulnerabilities as the bank grew rapidly in size and complexity.
Both halves of that matter. The institution outgrew its own controls, and the people watching it did not adjust their expectations at the same rate.
The business thought
This is a transferable scale-up lesson and it has nothing much to do with banking. Processes that are adequate at two million in revenue can be dangerous at twenty.
Controls, reporting, systems and leadership depth need to scale before the next growth step rather than after it. The uncomfortable part is that the moment they most obviously need upgrading is the moment everyone is busiest and most optimistic.
The practical watch
Add operational tripwires: customer concentration, cash runway, single points of failure, staff spans of control, unresolved incidents and forecast error.
Decide in advance which thresholds require board attention. Deciding in the moment is how thresholds get argued away.
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Source: Federal Reserve review of the supervision and regulation of Silicon Valley Bank.