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The absence of a chief risk officer at SVB for much of 2022 has prompted questions from the Fed. Farah Khalique reports.
The Federal Reserve is probing why Silicon Valley Bank (SVB) did not have a chief risk officer (CRO) for much of 2022, as part of its investigation into the bank’s failure. Proxy filings revealed that Laura Izurieta ceased acting as CRO in April 2022, and left the company in October that year.
Her replacement — Kim Olson, who joined from Sumitomo Mitsui Banking Corp where she was CRO for the Americas — did not join until January 4, 2023. Furthermore, it transpired that Ms Olson worked out of New York even though SVB was based in California, which is in a different time zone.
CROs and risk management experts have expressed their surprise at the turn of events — and queried why the bank did not appoint an interim CRO.
Justin Tovey is head of investment manager River and Mercantile. In his former life as a regulator, he worked as a senior risk specialist at the UK’s Financial Conduct Authority, where he scrutinised firms’ governance and risk management. He says that many board executives do not have a full appreciation and understanding of risk, simply because it is not their job.
Mr Tovey says: “The CEO and the board rely on the senior risk personnel, including the CRO, to be the person who’s there to provide proper challenge and oversight of the firm’s management of risks. If you don't have a CRO who is leading that oversight, and challenging and advising the CEO and the board on risk management, then it’s a gaping hole.”
SVB came unstuck after it bought billions of dollars’ worth of US Treasury bonds when interest rates were low, but these bonds lost value as the Fed hiked rates. The bank, which was founded in the 1980s and became a favourite among tech start-ups, also came under fire after a tech writer exposed its 185:1 debt-to-equity ratio in February.
Charlie Browne, head of market data, risk and quant solutions at GoldenSource, was a former head of independent pricing verification and valuations at Lloyds Banking Group. “As we have seen in recent years, there is no replacement for thorough risk management and a deep understanding of the risks associated with portfolio holdings on a daily basis,” Mr Browne notes. “The absence of a dedicated CRO suggests that SVB was without the kind of oversight required of a financial institution, especially at a time of rapidly increasing interest rates.
“The episode raises questions about the risk practices at the tier of banks below the global systemically important banks, in particular the culture of risk oversight and use of risk mastering data management systems needed for monitoring crucial risk measures, such as duration risk.”
This article first appeared in The Banker's new sister publication FinReg Specialist.
