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Bank overseers published a 2018 report with a major red flag about Silicon Valley Bank — and then they ignored it.

by David Sirota and Julia Rock, The Lever

As lawmakers look for clues about the corporate and regulatory failures at the root of the current bank crisis, a little-noticed report from the government’s top regulators could be one of the smoking guns. It shows that years before customers tried to flee Silicon Valley Bank (SVB) en masse, leading to its collapse, regulators knew that the nature of the bank’s deposits made it especially susceptible to such bank runs.

And yet despite that risk, no evidence has surfaced showing regulators did anything to reduce it. Instead, the Federal Reserve soon after approved SVB’s merger, declaring that the bank would not “pose significant risk to the financial system in the event of financial distress.”

Silicon Valley Bank headquarters and branch; Silicon Valley Bank, a subsidiary of SVB Financial Group, is a U.S.-based high-tech commercial bank

Less than two years after that, regulators announced they would be bailing out the bank’s uninsured depositors.

The warning sign came five years before that bailout. It was July 2018, just after President Donald Trump signed a bill rolling back the Dodd–Frank Wall Street Reform and Consumer Protection Act, passed after the financial crisis to improve oversight of banks. At the time, the Financial Stability Oversight Council (FSOC), set up by Dodd-Frank to identify risks to the financial system, published a list of major mid-sized banks and their levels of deposits with no federal insurance. If these banks were to fail, the uninsured deposits would not be accessible to the depositors.

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