California State-Chartered CUs, Banks to Face Greater Scrutiny
Following the failure of Silicon Valley Bank, California state-chartered credit unions and banks will face greater scrutiny. Learn why.
Report finds failures in monitoring of Silicon Valley Bank.
The failure of Silicon Valley Bank has led to the California Department of Financial Protection and Innovation (DFPI) conducting closer examinations of state-chartered credit unions and banks to identify any other institutions that could face liquidity failures or other severe risks, the department said in a report released this week.
These examinations came following the department’s conclusion that it had not monitored Silicon Valley close enough and had not adequately responded to warning signs.
“The DFPI identified certain metrics that could be indicators of risk, including a high composite CAMELS rating, a high CAMELS liquidity rating, a high percentage of uninsured deposits or high volume of uninsured deposits, and high levels of unrealized securities losses,” the agency said, in a report evaluating its supervision of Silicon Valley Bank before its failure.
What Steps Has the DFPI Taken?
As a result of those reviews, the department identified institutions requiring increased monitoring—something that the agency already has implemented. The agency did not disclose the institutions facing increased scrutiny.
The additional monitoring ranges from gathering reports on a more frequent basis to increased oversight during examinations.
“The DFPI will engage with its federal regulatory partners to discuss the speed and effectiveness of the current regulatory framework and to identify where regulators can make improvements to achieve timely remediation of deficiencies by supervised institutions,” the report stated. In addition, the department intends to review its internal staffing processes to ensure that additional staff is assigned in a timely manner to banks with assets above $50 billion that also have an increased risk profile.
Credit Union Response
One long-time Washington-based credit union advocate said the California department deserves credit for its examination of Silicon Valley.
“It’s an important one, because SVB was a California state charter and the regulator, for better for worse, had a front row seat,” the advocate said. “The regulator deserves credit for acknowledging that they didn’t evaluate risk properly. On the other hand, I imagine they’ll get blamed for not performing an on-site exam in almost a year.”