Janet Yellen’s Blame Game Is a Failure of Leadership

She tries to blame the Trump administration for failures connected to SVB that occurred entirely on her watch

Letter to The WSJ.

"Thank you for calling out Treasury Secretary Janet Yellen’s cheap, political attempt to blame the Trump administration’s Financial Stability Oversight Council staff for the major lapses of Federal Reserve leadership in connection with the failure of Silicon Valley Bank (“Yellen Blames Everybody Else,” Review & Outlook, April 3). This bank failed because of an interest-rate duration mismatch between assets and liabilities during a period of rising interest rates that occurred entirely within the Biden administration’s term. This is a basic risk endemic to all banks. It is covered by multiple pages in the Fed’s bank examiners’ manual.

To the credit of the Fed’s bank examiners, based on press accounts, they correctly identified this risk. But San Francisco and Washington Fed leadership and California bank regulators inexplicably failed to take any action. If one is looking for a political explanation here, could this failure have resulted from a hesitancy to criticize a major funding source for Silicon Valley—the pocketbook for contributions to California’s Democratic Party? I hope the congressional investigations of SVB’s failure will shed light on any possible improper political influence.

Turning to the FSOC’s role: In every recent FSOC annual report, the council’s staff discussed bank duration risk. In the 2020 annual report, the last one during the Trump administration, which I personally oversaw, we discussed duration risk. But interest rates hadn’t yet begun to rise, so the risk that caused SVB to fail wasn’t yet present.

In addition, because of legitimate concerns about consumer privacy, the FSOC staff doesn’t in the ordinary course of events receive raw bank-examination data. So, even if the size of its staff had been increased a hundredfold, the council’s members wouldn’t have spotted SVB’s problem unless the bank regulators had specifically informed them of it. Ms. Yellen’s speech was an inaccurate attempt to blame the Trump administration for failures that occurred entirely on her watch.

Howard B. Adler

Potomac, Md.

Mr. Adler was deputy assistant Treasury secretary for the Financial Stability Oversight Council, 2019-21."