In the aftermath of the swift collapse of three U.S. banks—Silicon Valley Bank, Signature Bank, and Silvergate Bank—regulators have faced intense criticism from both political parties. Democratic Senator Elizabeth Warren criticized regulatory oversight, suggesting that regulators had failed in their duties concerning Silicon Valley Bank (SVB), while Republican Senator Tim Scott echoed this sentiment, asserting that regulators seemed to be inattentive.

　　Michael Barr, the Federal Reserve's top banking regulator, acknowledged SVB's failure as a result of mismanagement but also admitted that recent events raise questions about evolving risks and potential improvements in regulatory actions. He indicated that it's crucial to identify and address the issues fully and is considering bolstering banking regulations.

　　Two former Fed officials with extensive experience at the central bank argue that the quality of supervision over U.S. lenders has been declining for years due to a cultural shift within the regulatory environment. James Thomson, formerly with the Federal Reserve Bank of Cleveland, and Walker Todd, a retired legal officer from the Federal Reserve Bank of New York, assert in an Institute for New Economic Thinking article that there has been a transition away from the stringent "audit/compliance model" which relied on hands-on field checks and rigorous financial audits conducted by regulators.

　　They claim that the current "consultative approach" trusts banks' own theoretical risk models too heavily, which can lead to manipulated data or overlooked structural details, ultimately resulting in a loss of institutional knowledge. This change began after William Taylor, known for his robust supervisory stance, left his position at the Fed’s Board of Governors. The authors attribute the decline in effective supervision to a power shift towards the Division of Research and Statistics during Alan Greenspan's tenure as Fed Chair in the 1990s.

　　According to Todd and Thomson, the increased influence of academic research at the Fed led to a reliance on more theoretical, model-based supervision, where stress tests and other evaluations were based on banks' self-reported forecasts and data. Even following the Global Financial Crisis of 2008, regulators continued to reinforce this model-based approach, potentially weakening bank supervision and contributing to the recent instability experienced by some financial institutions.

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