Who is the top regulator of banks? The Fed. Yet, the Fed is not a government agency. It was formed by an act of Congress but is a public/private combination where there are 12 regional banks with board of directors from member banks in a region. The banks must hold stock in the regional Fed bank, but all excess profits from the Fed are sent to the Treasury. The Fed and its regional banks have their own budgets, but the Chairman is required to report to Congress and the Board of Governors of the Federal Reserve System are selected by the president subject to approval by the Senate. Within this structure, the regional banks will regulate member institutions.
To put it simply, the regional Fed banks will regulate banks that can have executives on their board of directors. That was the case for SVB. The supervisors have a conflict with their member boards. It may not occur, but the appearances or chance for conflicts seems high.
All the problems with SVB were evident by reading their SEC filings, so what were the bank supervisors doing? What effective oversight were they providing? What should be their role to limit bad behavior before we have a tun on a bank?
The Fed has supervision of national banks so that it can ensure the safety and soundness of the financial system and the execution of monetary policy. A streamlined regulatory system makes sense, but is that what we currently have?
Just in case you need a refresher, here is a simple map of current regulatory oversight from Chris Skinner. So, who is responsible for overseeing bad management? If everyone is in charge, then no one is in charge.
Here are two more graphs which should make the point clearer from everycrsreport.com. So, can you tell me who is the chief regulator and who should be held accountable? There should be clarity and no conflicts. I don't know if we have that.
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