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

Emily Jacobs

March 18, 09:36 PM March 18, 09:36 PM

Silicon Valley Bank was reportedly warned by BlackRock's consulting arm early last year that its risk controls were "substantially below" other lenders.

More than two years before its ultimate collapse, SVB hired BlackRock's Financial Markets Advisory Group to analyze "the potential impact of various risks on its securities portfolio," according to a report published Saturday by the Financial Times. The outlet said that the consultants were also tasked with examining "the risk systems, processes and people in its treasury department, which managed the investments."

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BlackRock's final report, commissioned in October 2020 and submitted in January 2022, gave SVB a "gentleman's C," or a passing academic grade given to an otherwise failing student, according to the outlet. 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 also alleged that the bank was unable to generate real-time or even weekly updates about what was happening to its securities portfolio. SVB executives took in the criticism but turned down BlackRock's offer to do additional work, the outlet reports.

Banking regulators shut down SVB last Friday, two days after the nation's 16th-largest federally insured bank announced that it needed to raise more than $2.2 billion to remain solvent, which sent its stock price plunging over 60% in 48 hours. Last Sunday, they also announced the closure of Signature Bank while revealing plans to make customers of both financial institutions whole. The SVB failure is the second-largest in U.S. banking history while Signature Bank is the third.

The collapses led to a week of uncertainty for several regional banks and some bigger lenders. First Republic Bank, a regional bank, and Credit Suisse, a Swiss lender, both accepted rescue packages from larger institutions to shore up their liquidity.

The White House has called on Congress to strengthen regulations to prevent an industry-wide collapse of smaller banks, though Democrats are split on the issue while Republicans are united against it. It has also maintained, especially