Silicon Valley Bank's collapse: interest rate risk and liquidity risk mismanagement

Deg ee: Double Bachelo ’s deg ee in
Business and Economics
Final P ojec in Business Adminis a ion
Cou se 2024/2025
Silicon Valley Bank's Collapse:
In e es Ra e Risk and Liquidi y Risk
Mismanagemen
Au ho : Oihane Leyún P ie o
Di ec o : Jose Manuel Chamo o Gómez
In Bilbao, on Feb ua y 13, 2025
Abs ac
The collapse o Silicon Valley Bank (SVB) in Ma ch 2023 ma ked one o he mos signi ican
banking ailu es in ecen his o y, igge ing he Panic o 2023 and aising conce ns abou
isk managemen p ac ices in he inancial sec o . This s udy analyzes he key ac o s behind
SVB’s down all, ocusing on i s exposu e o in e es a e isk and liquidi y isk. The bank’s
hea y in es men in long- e m secu i ies made i highly ulne able o ising in e es a es,
leading o subs an ial un ealized losses. Simul aneously, i s dependence on la ge, uninsu ed
deposi s om he ech sec o exace ba ed liquidi y p essu es when wi hd awals su ged.
Th ough a de ailed examina ion o SVB’s inancial s a emen s, wi h special ocus on i s
balance shee s uc u e, his pape iden i ies he main sou ces o he a o emen ioned isks o
la e quan i y hem. The indings e eal ha by la e 2022, SVB was al eady on he b ink o
insol ency, wi h signi ican un ealized losses on long- e m secu i ies and a agile unding
s uc u e hea ily elian on la ge, uninsu ed deposi s. The poo managemen o in e es a e
isk and liquidi y isk, coupled wi h inadequa e egula o y supe ision, accele a ed he bank’s
down all.
Keywo ds: Silicon Valley Bank, bank ailu e, banking c isis, in e es a e isk, liquidi y isk,
isk managemen .
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Table o Con en s
1. In oduc ion........................................................................................................................ 4
1.1 Jus i ica ion o he Topic............................................................................................... 4
1.2 Objec i es.....................................................................................................................5
1.3 Me hodology.................................................................................................................5
2. Theo e ical F amewo k......................................................................................................6
2.1. In e es Ra e Risk (IRR).............................................................................................. 6
2.1.1. De ini ion............................................................................................................ 6
2.1.2. Main Sou ces..................................................................................................... 6
2.1.3. Measu emen ..................................................................................................... 7
2.2. Liquidi y Risk (LR)....................................................................................................... 9
2.2.1. De ini ion............................................................................................................ 9
3.2.2. Measu emen ................................................................................................... 10
2.3. IRR and LR Regula ion..............................................................................................11
2.4. IRR and LR Managemen ..........................................................................................13
3. Silicon Valley Bank’s Collapse........................................................................................15
3.1. Silicon Valley Bank His o y........................................................................................15
3.2. De ec ing IRR and LR Sou ces by Analyzing SVBFG’s Financial S a emen s......... 21
3.2.1. SVBFG’s Balance Shee .................................................................................. 21
3.2.1.1. Liabili y S uc u e o SVBFG....................................................................22
3.2.1.2. SVBG’s Asse S uc u e.......................................................................... 24
3.2.2. SVBFG’s Income S a emen and S a emen o Comp ehensi e Income......... 27
3.2.3. SVBFG’s Cash Flow S a emen ....................................................................... 28
3.2.4. Summa y o All IRR and LR Sou ces...............................................................28
3.3. IRR and LR Measu emen .........................................................................................29
3.3.1. Gap Analysis.................................................................................................... 29
3.3.2. Du a ion Analysis............................................................................................. 32
3.4. IRR and LR Managemen E o s...............................................................................34
4. Conclusions......................................................................................................................35
5. Re lec ion on he Wo k Done.......................................................................................... 36
6. Re e ences........................................................................................................................38
7. Appendix...........................................................................................................................41
Appendix 1: Bank ca ego y applicable egula ions and isk managemen equi emen s.41
Appendix 2: SVBFG’s Balance Shee .............................................................................. 42
Appendix 3: SVBFG’s Income S a emen and S a emen o Comp ehensi e Income.....43
Appendix 4: SVBFG’s Cash Flow S a emen ................................................................... 44
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1. In oduc ion
1.1 Jus i ica ion o he Topic
Silicon Valley Bank (SVB) ailed because o a ex book case o mismanagemen by
he bank. I s senio leade ship ailed o manage basic in e es a e and liquidi y isk.
I s boa d o di ec o s ailed o o e see senio leade ship and hold hem accoun able.
And Fede al Rese e supe iso s ailed o ake o ce ul enough ac ion (Ba , 2023).
On Ma ch 10, 2023, SVB, he six een h la ges bank in he Uni ed S a es collapsed,
becoming he second-la ges bank ailu e in U.S. his o y, ollowing he all o Washing on
Mu ual Bank in 2008. The Vice Chai o Supe ision o he Fede al Rese e, Michael Ba ,
desc ibed SVB’s collapse as a “ ex book case” sugges ing ha basic managemen and
supe iso y e o s ca ied ou by mul iple pa ies led o he ailu e o a well-es ablished
ins i u ion. Howe e , he epe cussions ex ended a beyond SVB i sel . I s collapse igge ed
he Panic o 2023, a b oade banking c isis ha led o he ailu es o o he U.S. ins i u ions,
including Signa u e Bank and Fi s Republic Bank, and con ibu ed o he down all o C edi
Suisse, he la ges bank ailu e in global his o y.
This c isis is ano he eminde o he pe sis en ulne abili ies in he banking sys em.
Despi e he ex ensi e esea ch, egula ion and supe ision aimed a gua an eeing he
co ec unc ioning o he sys em and inancial s abili y, banks con inue o collapse. These
e en s a e highly dange ous, as hei ad e se e ec s can impac ma ke s, economies, and,
in some cases, he global inancial sys em. The Wall S ee C ash o 1929, he G ea
Dep ession, and he global inancial c isis o 2008, a e s iking examples o how
ulne abili ies wi hin inancial ins i u ions can escala e in o widesp ead c ises (Hull, 2018).
The ecu ence o bank collapses ein o ces he impo ance o unde s anding hei
oo causes, which has gained inc easing ele ance in ecen yea s. In ac , he 2022 Nobel
P ize in Economics was awa ded o Ben Be nanke, Philip Dyb ig, and Douglas Diamond o
hei con ibu ions o he s udy o bank ailu es and he pi o al ole o public us in ensu ing
he s abili y o inancial ins i u ions (Be nake, 1983; Diamond & Dyb ig, 1983).
Despi e i s peculia i ies, he case o SVB becomes a aluable case o each us abou
he gene al case in banking economics, demons a ing how he mismanagemen o
undamen al inancial isks can lead o se e e epe cussions. I s down all no only exposed
weaknesses wi hin he bank bu also s imula ed discussions on he e ec i eness o isk
managemen , egula ion, and c isis esponse in mode n banking.
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1.2 Objec i es
The main objec i e o his s udy is o analyze he causes behind SVB's collapse,
ocusing on wo key a eas: in e es a e isk and liquidi y isk. This analysis aims o
con ex ualize SVB's ailu e wi hin banking isk managemen p ac ices, emphasizing how
mismanagemen o hese isks con ibu ed o i s down all.
The speci ic objec i es o his s udy a e:
● To de elop a deep unde s anding o in e es a e and liquidi y isks.
● To examine he his o y o Silicon Valley Bank and i s ajec o y.
● To iden i y and quan i y he in e es a e and liquidi y isks he bank aced be o e i s
collapse, and la e assess he managemen ailu es ha led o i s down all.
Beyond i s academic pu pose, his s udy also a ises om a pe sonal in e es in
gaining a deepe unde s anding o he banking sec o , an a ea ha , despi e i s signi icance,
is no explo ed in dep h h oughou he deg ee. I ha e conside ed his wo k as an
oppo uni y o enhance my knowledge o banking ope a ions, analyze he unde lying causes
o a bank ailu e, and unde s and he c i ical ole o e ec i e isk managemen , pa icula ly in
a sec o ha elies hea ily on public us . Fu he mo e, his wo k has allowed me o e ine
my inancial s a emen analysis skill, a capabili y I am cu en ly de eloping in my in e nship
and in end o s eng hen u he in he u u e.
1.3 Me hodology
The me hodology o his s udy combines bo h a heo e ical and p ac ical app oach.
Fi s , liquidi y and in e es a e isks a e de ined, along wi h hei iden i ica ion, measu emen ,
exis ing egula ions, and managemen s a egies. Nex , SVB’s his o y and collapse a e
examined, o unde s and how a bank wi h an inno a i e business model and apid g ow h
ul ima ely ailed. Subsequen ly, a de ailed analysis o i s inancial s a emen s, wi h special
ocus on i s balance shee , as o Decembe 2022 (jus mon hs be o e i s collapse) is
conduc ed o assess i s inancial posi ion and iden i y majo in e es and liquidi y isk
sou ces. Based on his analysis, hese isks a e quan i ied o demons a e how he bank's
ulne abili ies we e al eady e iden be o e he c isis. This examina ion will allow o a
discussion on he sho comings in isk managemen by he esponsible pa ies. Finally, he
conclusions summa ize he key indings and lessons lea ned om he SVB case.
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2. Theo e ical F amewo k
2.1. In e es Ra e Risk (IRR)
2.1.1. De ini ion
Acco ding o he Basel Commi ee on Banking Supe ision (BCBS)1 (2004) o he
Bank o In e na ional Se lemen s (BIS)2, in e es a e isk e e s o “ he exposu e o a
bank’s cu en and u u e ea nings and capi al a ising om ad e se mo emen s in in e es
a es”. Financial ins i u ions a e especially sensi i e o in e es a e swings due o he na u e
o hei balance shee s, which include in e es -ea ning asse s and in e es -bea ing liabili ies
ha di e in ma u i ies and in in e es a es. Consequen ly, luc ua ions in in e es a es can
al e he alue o mos asse s and liabili ies. Conside ing ha ne in e es income (NII)3, he
p ima y sou ce o e enue o banks, is di ec ly a ec ed by changes in in e es a es,
e ec i e managemen o IRR is essen ial o ensu e banks’ p o i abili y and p ese e hei
economic alue.
2.1.2. Main Sou ces
The BCBS (2004) iden i ies ou p ima y sou ces om which IRR a ises:
1) Rep icing Risk: i de i es om disc epancies in he iming o in e es a e changes
and cash lows. Banks a e exposed o his isk when hey enew he liabili ies used o
und hei asse s, ha come due and a e enewed a di e en imes. Usually, banks
inance long- e m, high-yield asse s wi h sho - e m lowe -in e es liabili ies, which
makes hem liabili y-sensi i e. As a esul , hei liabili ies ep ice as e han asse s,
exposing hem o po en ial losses i in e es a es ise.
2) Yield Cu e Risk: i e e s o he isk aced by a inancial ins i u ion due o a ia ions
in he slope o he shape o he yield cu e4. I esul s om shi s in he co ela ion
be ween in e es a es a di e en ma u i ies wi hin a gi en ma ke o index.
4 The yield cu e is he unc ion desc ibing he ela ionship be ween in e es a e a ia ion and
ma u i y.
3 NII a ises om he di e ence be ween he in e es ea ned om in e es -gene a ing asse s, such as
loans and secu i ies, and he in e es paid on in e es -bea ing liabili ies, such as unds and deposi s
(Hull, 2018).
2 The BIS is an in e na ional inancial ins i u ion ha o e s inancial se ices o cen al banks and
suppo s hem in hei sea ch o mone a y and inancial s abili y h ough in e na ional coope a ion.
1 The BCBS is he p ima y global s anda d se e o he p uden ial egula ion o banks and p o ides a
o um o egula coope a ion on banking supe iso y ma e s.
6
3) Basis Risk: i a ises when he ela ionship be ween in e es a es in di e en inancial
ma ke s o ins umen s changes. This happens because he e a e many di e en
in e es a es in a gi en cu ency, which end o mo e oge he bu a e no pe ec ly
co ela ed.
4) Op ions Risk: i eme ges when a bank o i s clien holds op ions, which a e inancial
ins umen s ha gi e he igh o modi y he iming o amoun o cash lows
associa ed wi h an asse , liabili y, o o -balance-shee (OBS) ins umen .
Consequen ly, he holde o an op ion has he igh o buy o sell a inancial asse a a
speci ied p ice be o e a ce ain da e, which can be p omp ed by changes in in e es
a es. This poses a isk o nea ly all banks, which end o hold inancial ins umen s
wi h embedded op ions on bo h hei asse s and liabili ies, such as a iable- a e
loans wi h p epaymen op ions o demand deposi s.
2.1.3. Measu emen
In iew o he g ea impac IRR has on banks, p ecise and p omp measu emen o
his isk becomes essen ial o adequa e managemen . The Fede al Deposi Insu ance
Co po a ion (FDIC) (2024) holds ha inancial ins i u ions should equen ly measu e IRR
and employ a ious measu emen me hods, sui able o he bank’s cha ac e is ics, such as
i s size, complexi y and isk p o ile. This allows e alua ing how sensi i e a bank’s ea nings,
asse s and liabili ies a e o in e es a es swings. The mos widely used me hods include:
● Ea nings simula ion models: also known as ea nings-a - isk (EaR) models, o ecas
u u e p o i abili y unde di e en scena ios. They measu e sho - e m IRR by
e alua ing he po en ial impac o a e changes on he bank’s ea nings, ypically NII,
o e a speci ied pe iod, o en one o wo yea s (Boa d o Go e no s o he Fede al
Rese e Sys em, 2023a).
● Gap epo s: hey ocus on he iden i ica ion o sho - e m ma u i y and ep icing
imbalances be ween asse s and liabili ies wi hin a gi en pe iod. They gene ally
p esen a ios o a e-sensi i e-asse s (RSA) o a e-sensi i e-liabili ies (RSL)5 o
de e mine he bank’s sensi i i y. The U.S. O ice o he Comp olle o he Cu ency
(OCC)6 (2020) s a es ha a posi i e gap, o an RSA o RSL a io abo e one indica es
asse -sensi i i y, so ha asse s ep ise as e , a nega i e gap o an RSA o RSL a io
6 The OCC, an au onomous bu eau wi hin he U.S. Depa men o he T easu y, is esponsible o
egula ing and supe ising “all na ional banks and ede al sa ings associa ions as well as ede al
b anches and agencies o o eign banks” (OCC, 2020).
5 RSA (RSL) e e s o all he asse s (liabili ies) ha ma u e o a e ep iced wi hin he gapping pe iod.
7
below one indica es liabili y-sensi i i y, so ha liabili ies ep ice as e , and a neu al
gap o RSA o RSL equal o one indica es a neu al gap o no ma u i y imbalance.
● Du a ion Analysis: Macaulay’s du a ion measu es how much weigh ed a e age ime
an in es o has o wai o eco e he p esen alue o he cash lows o a bond (Hull,
2018). I helps o measu e how much he alue o an asse o liabili y would change
o a small in e es a e shi , which is o en measu ed in basis poin s7. Macaulay’s
du a ion o mula is as ollows:
,
𝐷=Σ𝑡𝑖𝑣𝑖
𝐵
( )
whe e e e s o he ime, usually exp essed in yea s, in which he cash low is
𝑡
made, is he p esen alue o he cash low, and is he ma ke p ice o he bond.
𝑣 𝐵
The change in he bond’s ma ke p ice is ob ained as:
,
Δ𝐵 =−𝐷𝐵Δ𝑦
whe e s ands o he shi in he bond’s yield.
∆𝑦
● Con exi y Analysis: simila o du a ion analysis, con exi y measu es he sensi i i y o
a po olio o in e es a e shi s. Howe e , i p o ides mo e accu a e es ima es o
bond p ices, pa icula ly o la ge in e es a e changes by conside ing he non-linea
ela ionship be ween bond p ices and yields (Hull, 2018). The con exi y o a bond is:
,
𝐶= 1𝐵 𝑑2𝐵
𝑑𝑦2=Σ𝑐𝑖𝑡𝑖2𝑒−𝑦𝑡𝑖
𝐵
whe e is he bond’s yield measu ed wi h con inuous compounding and s ands o
𝑦𝑐
cash low. This is he weigh ed a e age o he squa e o he ime o he eceip o
cash lows. Hull (2018) p o ides a o mula o app oxima e he change in he bond
p ice combining bo h Macaulay’s du a ion and con exi y as ollows:
∆𝐵
𝐵 = −𝐷∆𝑦+ 12𝐶(∆𝑦)2
7 A basis poin is 0.01% pe annum.
8
2.2. Liquidi y Risk (LR)
2.2.1. De ini ion
Liquidi y isk e e s o he po en ial di icul ies an en i y may encoun e in unding
asse g ow h and ul illing paymen obliga ions, due o cash sho age o inabili y o con e
asse s in o cash wi hou acing signi ican losses. The BCBS (2008) holds ha banks a e
subjec o LR by na u e since hei co e unc ion is o ans o m sho - e m deposi s in o
long- e m loans. This misma ch be ween he ma u i ies o asse s and liabili ies, along wi h
he unce ain y o ce ain cash lows, such as deposi wi hd awals, loan enewals o new
loan eques s, heigh ens LR. Thus, adequa e LR managemen becomes essen ial o ensu e
a bank emains liquid and can mee all paymen obliga ions a any ime.
Mo eo e , insu icien liquidi y can lead o a bank un, a si ua ion whe e a la ge
numbe o deposi o s simul aneously wi hd aw hei unds om a bank because hey belie e
i migh ail o become insol en , and he e o e ea no being able o eco e hei deposi s
(Iye & Pu i, 2012). This sudden demand can cause sol en 8 inancial ins i u ions o ail as
he bank is unable o make cash paymen s when hey a e due. Besides, he p oblem o one
bank can apidly sp ead ac oss he en i e banking sec o , igge ing a bank panic. In u n,
lack o liquidi y can ha e epe cussions on he whole inancial sys em (BCBS, 2008).
Acco ding o Hull (2018) inancial ins i u ions’ liquidi y unding p oblems a ise om:
● Liquidi y s ess in he economy: c edi isk conce ns can discou age in es o s om
p o iding unding, as i happened in he inancial c isis o 2007.
● O e - eliance on sho - e m unding o long- e m obliga ions: inancial ins i u ions
end o und hei long- e m obliga ions h ough sho - e m ins umen s. These
ma u i y imbalances can b ing liquidi y issues i no managed co ec ly.
● Poo inancial pe o mance: banks ely on cus ome s’ us . I cus ome s pe cei e a
high isk o de aul , hei con idence loss may lead o a unding sho age.
In ac , banks’ insu icien liquidi y le els we e one o he easons ha s imula ed he
economic and inancial c isis o 2007. The con idence loss o he ma ke owa ds he
sol ency and liquidi y o banks impac ed no only he banking sec o bu also he inancial
sys em and he global economy (BCBS, 2011). This was a u ning poin , and since hen
awa eness o he impo ance o LR and i s managemen has inc eased and mo e
app op ia e egula ion has eme ged. The e a e many examples o bank ailu es due o LR,
8 Sol ency e e s o he abili y o a company o mee i s obliga ions. A company is sol en when i s
asse s exceed liabili ies, so ha he alue o i s equi y is posi i e (Hull, 2018).
9
s a ups o es ablished en e p ises10. Figu e 1 p esen s he g oup’s clien unds by clien
ype, p o ing i s high clien concen a ion bo h on deposi s and on unds placed OBS a ising
om VC ac i i y.
Figu e 1: SVBFG’s o al clien unds by clien ype
No es: Ea ly s age echnology, echnology, ea ly s age li e science/heal hca e and li e science/
heal hca e e e o VC-backed companies.
Sou ce: SVB Financial G oup (2023).
Unlike adi ional banks, SVB specialized in suppo ing high- isk s a up companies,
which a e cha ac e ized by unp edic able p o i abili y in hei ea ly yea s, and p o ided hem
inancial suppo ac oss hei en i e li ecycle (Al-Sowaidi & Faou , 2023). This esul ed in a
high concen a ion o unds alloca ed o VC-backed and ea ly-s age companies.
Addi ionally, i s pionee ing and pe sonalized app oach o banking enabled he
company o es ablish s ong s a egic ela ionships wi h he VC and PE i ms wo ldwide,
many o which we e no only clien s bu also po en ial in es o s in o he SVB-backed
companies. This ne wo k played a c ucial ole in acili a ing g ow h and in es men wi hin he
inno a ion ecosys em, in which SVB ac ed as a key inancial pa ne o en ep eneu s,
inno a o s and in es o s.
The g oup p o ided se ices o a di e se a ay o cus ome s ac oss he U.S. and o
in e na ional cus ome s in key in e na ional inno a ion ma ke s. Ne e heless, SVBFG
de i ed he majo i y o i s e enue om U.S. clien s, and abou 80% o i s wo k o ce was
based in he U.S., p oo o hei s ong ocus on he domes ic ma ke .
Be ween 2019 and 2021, he bank expe ienced ema kable p o i s and a subs an ial
ise in deposi pe cen age. This was due o he apid g ow h o he ech indus y du ing
COVID-19 pandemic and he economic measu es aken o s imula e he economy a he
10 SVB o e ed h ee di e en banking p ac ices aimed a each s age o he li e cycle: SVB S a Up
Banking o ea ly-s age p i a e companies wi h annual e enues below $5 million, SVB Ea ly S age
o mid-s age companies, usually en u e- unded and wi h e enues be ween $5 million and $75
million, and SVB Co po a e Banking o ma u e companies wi h annual e enues o e $75 million.
16

ime (Tellez, 2023). The nea -ze o in e es a es du ing his pe iod, combined wi h he excess
liquidi y due o he Fed’s decision o injec $2.3 illion in loans o help mi iga e he e ec s o
he pandemic, pushed in es o s owa ds iskie al e na i es yielding highe e u ns such as
s a ups (Al-Sowaidi & Faou , 2023).
All his led o inc eased VC and s a up in es men in eme ging echnology
companies (Figu e 2), which b ough a la ge in lux o capi al o he banking sec o in he
o m o deposi s (Figu e 3). SVB made g ea p o i s om aking deposi s om cus ome s,
mos ly uninsu ed11, as seen in Figu e 3, and lending hem a a highe in e es a e.
Figu e 2: U.S. VC deal ac i i y by qua e 2017-2022
No es: Deal ac i i y: equi y in es men s in s a ups.
Sou ce: Ba (2023).
Figu e 3: SVB’s deposi s e olu ion by qua e 2017-2022
Sou ce: Ba (2023).
11 Uninsu ed deposi s a e bank deposi s exceeding he insu ance limi s se by a coun y’s deposi
insu ance agency. In he Uni ed S a es, he FDIC p o ides deposi insu ance up o $250,000 pe
deposi o a each FDIC-insu ed bank o p o ec indi iduals in he e en o a bank ailu e.
17
Ne e heless, he bank s a ed o ace a lending sho age as i ecei ed mo e
deposi s han i could lend ou . To add ess his, SVB alloca ed i s excess unds p ima ily in o
longe - e m, held- o-ma u i y (HTM)12 secu i ies, bo h mo gage-backed secu i ies and U.S.
T easu y bonds, low isk in es men s ha p o ide a p edic able e u n (Tellez, 2023).
In his way, h ough almos ou decades, SVB buil a epu a ion as a co ne s one o
he inno a ion economy and es ablished s ong connec ions wi h VC and PE i ms, po olio
companies o in es o s, p ominen law i ms and in luen ial igu es in his sec o (Nguyen,
2024). In ac , almos hal o all U.S. li e sciences and echnology i ms backed by en u e
capi al ecei ed inancing om SVB, addi ional p oo o he Bank’s link o VC deal ac i i y
(SVB Financial G oup, 2023).
By 2022, SVB was he 16 h la ges bank in he U.S. based on o al asse s and had a
lo o ecogni ion. Be ween 2019 and 2023, SVBFG was lis ed in Fo bes’ p es igious annual
anking o “Ame ica's Bes Banks” o i e consecu i e yea s, as well as in “Fo bes Financial
All-S a s” in 2023. Addi ionally, he g oup was named one o he 100 bes companies o wo k
o by FORTUNE Magazine.
Ne e heless, he Fed's decision in Ma ch 2022 o aise in e es a es o igh in la ion
b ough se e e consequences o he bank and con ibu ed o i s collapse. Th oughou 2022,
he Fede al Funds Ra e, he in e es a e ange a which banks lend o one ano he and a
key benchma k o o he in e es a es, inc eased o a ound 4.5% (Kozlowski &
Jo dan-Wood, 2023). Figu e 4 shows he e olu ion o he Fede al Funds E ec i e Ra e
be ween he beginning o 2020 un il Ma ch 15, 2023.
This comple ely changed he shape o he yield cu e, which by he end o he yea
was nea ly la a a ound 4% o all ma u i ies, indica ing ha he e m-sp ead (o he highe
yield o longe e ms) was elimina ed (Me ick, 2024). Highe a es dec eased he ma ke
alue o he company’s in es men secu i ies and led o un ealized losses13. Mo eo e , hese
highe a es diminished he appeal o iskie in es men s, educing clien s' in e es in unding
new companies and accele a ing he ou low o deposi s (Tellez, 2023).
13 Un ealized losses a e po en ial losses ha a ise when he ma ke alue o a secu i y alls below i s
pu chase p ice, ep esen ing he loss ha would be incu ed i he secu i y we e sold (Ba , 2023).
12 HTM secu i ies consis o secu i ies in ended o be held un il ma u i y, so ha he bank eco ds hem
a amo ized his o ical cos . Howe e , i banks decide o sell e en a pa o hem, hey ha e o
eclassi y all o hem as a ailable- o sale (AFS) a ma ke alue (Vicke y e al., 2015).
18
Figu e 4: Fede al Funds E ec i e Ra e E olu ion by qua e be ween Janua y 1, 2020
and Ma ch 15, 2023
No es: Uni s in pe cen ages. F equency: daily (7-Day).
Sou ce: Own elabo a ion, da a om Boa d o Go e no s o he Fede al Rese e Sys em ia FRED.
The inc ease in deposi wi hd awals caused liquidi y issues o he bank owa ds i s
clien s. To add ess his, SVB sold go e nmen bonds a a p ice lowe han he pu chase
p ice, which u ned un ealized losses in o ealized ones. Al hough he si ua ion wen
unno iced o a while, i u ned se ious when Moody's In es men Se ice h ea ened
downg ading SVB’s c edi a ing by mo e han one no ch due o he Bank’s di icul ies o
mee deposi o s' wi hd awal eques s (Wang, 2023).
In iew o his, on Ma ch 8, 2023, SVBFG announced a es uc u ing o i s balance
shee . “SVBFG had sold $21 billion in a ailable- o -sale (AFS) secu i ies, was booking a
$1.8 billion a e - ax loss, was planning o inc ease e m bo owings by $15 billion o $30
billion, and was seeking o ise $2.25 billion in capi al” (Ba , 2023). The aim was o sell he
low-yielding bonds o ein es he money in asse s yielding highe e u ns, which, along wi h
he sold sha es, would o se he incu ed losses (Wang, 2023).
The ollowing day, panic eme ged among uninsu ed deposi o s, who in e p e ed he
announcemen as a signal o inancial dis ess, which led o a bank un. Wi hd awals o
uninsu ed deposi s app oached $42 billion on Ma ch 9 h, almos 25% o o al deposi s, wi h
es ima es indica ing an addi ional $100 billion ou low on Ma ch 10, nea ly deple ing he
bank’s emaining deposi s. Acco ding o Ba (2023), he un was spa ked by social media
and he i m’s concen a ed clien ele o VC in es o s and echnological i ms ha wi hd ew
hei deposi s simul aneously, esul ing in a ema kable deposi ou low ha accoun ed o
85% o he bank’s o al deposi s. In ac , a s udy conduc ed by Bales & Bu gho (2024)
p o ed how in ense social media ac i i y, especially on Twi e and Google, accele a ed
19
SVB’s collapse by in luencing i s s ock p ice and enabling eal- ime bank un coo dina ion
be ween Ma ch 8 and Ma ch 10, 2023 as shown in Figu e 5.
Figu e 5: Public eac ion o SVB’s es uc u ing announcemen (Ma ch 8-10, 2023)
Sou ce: Bales & Bu gho (2024).
SVB collapsed on Ma ch 10, 2023, due o insu icien cash o mee he ex ao dina y
and sudden ou lows ha caused a bank un. Tha mo ning, he Cali o nia Depa men o
Financial P o ec ion and Inno a ion closed SVB, becoming he as es bank closu e in U.S.
banking his o y, and appoin ed he FDIC as ecei e , which subsequen ly led o he
bank up cy o SVBFG (Ba , 2023). The egula ion and supe ision in place o p e en bank
ailu es p o ed insu icien in a e ing his ou come.
Ne e heless, as p e iously men ioned, bank ailu es a e a ely isola ed e en s.
SVB’s collapse igge ed sys emic isk and se o he Panic o 2023, leading o he ailu es o
o he wo egional banks, namely Signa u e Bank and Fi s Republic Bank, due o simila
exposu e o uninsu ed deposi s and IRR. The con agion e ec caused widesp ead deposi
wi hd awals, esul ing in hei shu downs on Ma ch 12 and May 1, espec i ely.
In an a emp o con ain he c isis, egula o s in oked he “sys emic- isk excep ion”
om he 1991 law, which allowed he FDIC o ully co e uninsu ed deposi s a SVB and
Signa u e. Howe e his measu e p o ed insu icien , and oge he , hese h ee bank ailu es
ep esen he la ges ailu es in U.S. his o y. Ul ima ely he c isis sp ead o Eu ope,
culmina ing in he collapse o C edi Suisse in Ap il 2023, he la ges bank ailu e in global
his o y (Me ick, 2024).
20
3.2. De ec ing IRR and LR Sou ces by Analyzing SVBFG’s Financial S a emen s
3.2.1. SVBFG’s Balance Shee
By he end o 2022, SVBFG’s balance shee al eady p esen ed a isky s uc u e, and
he isks associa ed wi h i could be spo ed. The company held $211.8 billion wo h o
asse s (see Appendix 2 o SVBFG’s balance shee ), consis ing o $120.1 billion in
in es men secu i ies, $73.6 billion in loans, $13.8 billion in cash, and $4.3 billion in o he
asse s. Equi y accoun ed o $16.3 billion, while liabili ies amoun ed o $195.5 billion. O
hese liabili ies, $173.1 billion we e deposi s, $13.6 billion we e sho - e m bo owing, $5.4
billion we e long- e m bo owing and $3.4 billion ell unde o he liabili ies. Figu e 6 p o ides
an o e iew o SVBFG’s balance shee s uc u e as o Decembe 31, 2022.
Figu e 6: SVBFG’s Balance Shee S uc u e Decembe 31, 2022
No es: The colo g adien ep esen s he liquidi y o asse s and liabili ies, wi h da ke blues indica ing
illiquid i ems and ligh e shades ep esen ing mo e liquid ones. While loans a e gene ally mo e illiquid
han in es men secu i ies, his was no he case o SVB, as explained along his sec ion.
Sou ce: Own elabo a ion, SVB Financial G oup (2023).
While o al asse s emained ela i ely s able, amoun ing o $211.3 billion in 2021, he
changes om one yea o he nex we e p ima ily d i en by shi s wi hin indi idual asse and
21

liabili y ca ego ies, a he han a signi ican change in he o e all o al. These shi s e lec
how clien s and he bank esponded o he changing economic en i onmen h oughou
2022, and sugges ed po en ial isks o he ollowing yea .
Hence, analyzing SVBFG’s balance shee s uc u e will p o ide an unde s anding o
he company’s inancial posi ion a he yea -end and he isks i aced p io o i s collapse. By
examining he e olu ion o he composi ion o asse s and liabili ies, and conside ing hei
ma u i y pe iods, i known, he main sou ces o IRR and LR will be iden i ied, which he
company could, and should, ha e iden i ied. Fo his analysis, da a has been ob ained om
he SVBFG’s 2022 annual epo (2022 Annual Repo onwa ds).
3.2.1.1. Liabili y S uc u e o SVBFG
As p e iously men ioned, SVBFG’s liabili ies we e composed o deposi s, sho - e m
bo owings, long- e m deb and o he liabili ies. In o al, hey amoun ed o $195.5 billion
($194.7 billion in 2021). Table 1 p o ides a de ailed b eakdown o he composi ion o
SVBFG’s liabili ies and hei espec i e ma u i ies as o Decembe 31, 2022, as well as a
compa ison o he company’s liabili ies as o Decembe 31, 2021.
Table 1: SVBFG’s Liabili ies (Decembe 31, 2022)
(Dolla s in
millions)
Unce ain
One yea o
less
Mo e han one
yea o i e
yea s
Mo e han
i e yea s
To al 2022
To al 2021
Deposi s
$ 166,416
$ 6,682
$ 11
$ 173,109
$ 189,203
ST bo owings
$ 13,565
$ 13,565
$ 71
LT deb
$ 2,995
$ 2,375
$ 5,370
$ 2,570
O he liabili ies
$ 3,454
$ 3,454
$ 2,855
To al liabili ies
$ 166,416
$ 23,701
$ 3,006
$ 2,375
$ 195,498
$ 194,699
Sou ce: Own elabo a ion, SVB Financial G oup (2023).
The liabili y s uc u e o SVBFG p esen ed a high unding concen a ion, wi h
deposi s being he bank’s main sou ce o unding. Despi e he no o ious deposi ou low
expe ienced du ing 2022, deposi s s ill accoun ed o almos 89% o o al liabili ies by he
end o ha yea , d opping om o e 97% in 2021.
To compensa e o he $16.1 billion dec ease in deposi s, he company signi ican ly
inc eased i s sho - e m bo owings, by nea ly $13.5 billion. While hese bo owings,
p ima ily composed o sho - e m loans, ep esen ed jus 7% o o al liabili ies, hey became
he bank’s second-la ges sou ce o inancing, su passing long- e m liabili ies. This
22
signi ican inc ease highligh s he bank's e o s o add ess i s liquidi y needs and mee i s
obliga ions. Acco ding o he 2022 Annual Repo , he weigh ed a e age in e es a e on
hese bo owings was 2.9%.
Addi ionally, a $2.8 billion inc ease in long- e m deb , which comp ised senio no es,
subo dina ed deb , and con e ible deb wi h ma u i ies exceeding one yea , alongside a
$0.6 billion inc ease in o he liabili ies, which included a ious sho - e m ope a ional
payables, ully o se he decline in deposi s. All hese adjus men s collec i ely led o a sligh
inc ease in he company’s o al liabili ies, which nega i ely impac ed i s NII due o highe
in e es expenses.
Focusing on deposi s, he bank’s p ima y sou ce o unding, in 2022, hey we e
composed o $166.4 billion in demand deposi s, which we e payable on demand, and $6.7
billion in ime deposi s (commonly known as e m deposi s), p edominan ly wi h a ixed
ma u i ies o h ee mon hs o less. This s uc u e exposed he bank o signi ican unce ain y
ega ding he iming o deposi wi hd awals, as mos o i s unding could be equi ed by
clien s’ on e y sho no ice. This unce ain y c ea ed a need o SVB o main ain su icien
liquidi y o mee clien s’ po en ial wi hd awal demands, making i pa icula ly ulne able o
bank uns and inc easing i s LR.
Mo eo e , holding such a high p opo ion o demand deposi s inc eased he bank’s
exposu e o op ion isk, a componen o IRR. Since deposi o s could wi hd aw hei unds a
any ime, luc ua ions in in e es a es could incen i ize ea ly wi hd awals, as seen in 2022.
Fascione e al. (2024) highligh ha digi aliza ion has educed deposi s abili y and inc eased
deposi sensi i i y o in e es a e changes. This end unde sco es he need o banks o
adap hei liquidi y isk managemen s a egies o an en i onmen whe e wi hd awals can
occu mo e apidly han e e be o e.
By yea end, o al deposi s comp ised $80.8 billion in non-in e es bea ing (down
om $125.9 billion in 2021) and $92.4 billion in in e es bea ing (up om $63.4 billion in
2021). These shi s e lec cus ome s’ eac ion o ising in e es a es. On he one hand,
holde s o non-in e es -bea ing deposi s we e incen i ized o seek yield-gene a ing
al e na i es, ei he wi hin he bank by swi ching o in e es -bea ing deposi s, o ex e nally in
he ma ke . On he o he hand, assuming he bank aised in e es a es on deposi s o s ay
compe i i e, clien s wi h in e es -bea ing deposi s had mo i es o e ain hei unds. This
simul aneous inc ease in in e es -bea ing deposi s and decline in non-in e es deposi s
ansla ed in o highe in e es expenses o he bank, which nega i ely impac ed i s NII.
23
Besides, ha ing a cus ome base highly concen a ed and homogeneous u he
inc eased he bank’s exposu e o LR and a po en ial bank un. As SVB’s clien s ope a ed in
ela ed sec o s, he economic and inancial condi ions a ec ing one sec o simul aneously
impac ed a la ge po ion o he bank’s deposi base. The e o e, while he g ow h o he ech
sec o be ween 2019 and 2021 con ibu ed o subs an ial deposi in lows, his eliance also
posed signi ican isk o simul aneous wi hd awals in imes o inancial need, lowe ech
unding o educed VCl ac i i y, as i happened in 2022.
I is no ewo hy ha $151.5 billion o all deposi s we e la ge enough o be uninsu ed,
making SVBFG he bank wi h he highes pe cen age o uninsu ed deposi s among all banks
wi h asse s o $50 billion o mo e (Me ick, 2024). This agg a a ed he bank’s unding
concen a ion, as mos o i s unding came om ewe clien s wi h la ge deposi s.
3.2.1.2. SVBG’s Asse S uc u e
Mo ing in o SVBFG’s asse s, he company held cash, loans, in es men secu i ies
and o he asse s, amoun ing o $211.8 billion ($211.3 billion in 2021). Table 2 p o ides a
de ailed b eakdown o he composi ion o SVBFG’s asse s and hei espec i e ma u i ies as
o Decembe 31, 2022, along wi h a compa ison o he company’s asse s he yea be o e.
Table 2: SVBFG’s Asse s (Decembe 31, 2022)
(Dolla s in
millions)
No
speci ied o
no ma u i y
One yea
o less
Mo e han
one yea o
i e yea s
Mo e han
i e yea s o
en yea s
Mo e han
en yea s
To al
2022
To al
2021
Cash
$ 13,803
$ 13,803
$ 14,586
Ne loans
$ -636
$ 42,913
$ 18,251
$ 13,086
$ 73,614
$ 65,854
In es men
secu i ies
$ 2,664
$ 1,153
$ 15,520
$ 7,441
$ 93,276
$ 120,054
$ 127,959
O he asse s
$ 375
$ 3,082
$ 865
$ 4,322
$ 2,909
To al asse s
$ 2,403
$ 60,951
$ 33,771
$ 20,527
$ 94,141
$ 211,793
$ 211,308
No es: Ma u i ies o cash and o he asse s ha e been es ima ed conside ing he na u e o he asse s.
Asse s wi h no ma u i y o no speci ied ma u i y include allowance o c edi losses in nega i e sign
(classi ied unde ne loans), non-ma ke able secu i ies (classi ied unde in es men secu i ies) and
goodwill (classi ied unde o he asse s).
Sou ce: Own elabo a ion, SVB Financial G oup (2023).
The company’s asse s uc u e was p edominan ly composed o in es men
secu i ies, mos ly wi h ma u i ies o e en yea s, which accoun ed o 57% o o al asse s by
he end o 2022. Loans, on he o he hand, accoun ed o 35% o o al asse s. Acco ding o
24
Ba (2023), his alloca ion was no ably a ypical, as mos la ge banking o ganiza ions (LBOs)
alloca e, on a e age, 24% o hei o al asse s o in es men secu i ies and 58% o loans.
O he $120.1 billion in es men secu i ies, as shown in Table 3, $91.3 billion we e
HTM secu i ies, ep esen ing 76% o o al secu i ies (almos he double o an a e age LBO),
$26.1 billion we e AFS14 secu i ies, which comp ised 22% o o al secu i ies, and $2.7 billion
we e non-ma ke able and o he equi y secu i ies15 accoun ing o 2%.
Table 3: SVBFG’s In es men Secu i ies (Decembe 31, 2022)
(Dolla s in
millions)
No
speci ied o
no ma u i y
One yea
o less
Mo e han
one yea o
i e yea s
Mo e han
i e yea s
o en yea s
Mo e han
en yea s
To al 2022
To al
2021
AFS
$ 1,084
$ 14,784
$ 2,963
$ 7,238
$ 26,069
$ 27,221
HTM
$ 69
$ 736
$ 4,478
$ 86,038
$ 91,321
$ 98,195
Non-ma k.
$ 2,664
$ 2,664
$ 2,543
In es men
secu i ies
$ 2,664
$ 1,153
$ 15,520
$ 7,441
$ 93,276
$ 120,054
$ 127,959
No es: Non-ma k.: non-ma ke able and o he equi y secu i ies. AFS secu i ies a ai alue, HTM
secu i ies a amo ized cos .
Sou ce: Own elabo a ion, SVB Financial G oup (2023).
As p e iously explained, al hough SVB’s p ima y ac i i ies we e deposi in ake and
loan issuance, he excess liquidi y gene a ed by he high olume o deposi s be ween 2019
and 2021, combined wi h he ela i ely weake lending ac i i y, led he bank o in es i s
unds in long- e m HTM secu i ies. This s a egy aimed o gene a e e u ns by in es ing in
secu i ies adi ionally conside ed low- isk, as hei nominal alue is eco e ed a ma u i y
and hey end o p o ide egula and s able cash lows, and because mos o hem we e
issued by he U.S. go e nmen , so hey posed low c edi isk. Ye , holding such a high sha e
o hese ins umen s exposed he bank o bo h signi ican IRR and LR, since secu i ies wi h
la ge ma u i ies a e highly sensi i e o a e luc ua ions.
Meanwhile, mos loans we e sho - e m c edi lines, p ima ily g an ed o PE and VC
i ms ha need inancing be o e ecei ing capi al con ibu ions om hei in es o s. In
con as , he company ex ended e y ew comme cial o esiden ial mo gages. Besides,
15 Non-ma ke able secu i ies a e no adeable and equi y secu i ies do no ma u e (Vicke y e al.,
2015).
14 AFS secu i ies a e lexible secu i ies ha he bank may ei he sell o e ain o long pe iods, and
since hey a e accoun ed o a ma ke p ice, hey a e eco ded a ai p ice in he balance shee .
(Vicke y e al., 2015).
25
p opo ional inc ease in asse income, nega i ely impac ing p o i abili y. This nega i e e ec
would ha e in ensi ied in he in e media e e m, wi h a $98.40 million dec ease in NII, as he
nega i e accumula ed gap con inued o g ow. This e idences he bank’s ulne abili y o
ising a es, as liabili ies would ha e been e inanced a highe cos s, while asse income
would no ha e been su icien o compensa e o his.
In con as , in he long e m, he posi i e accumula ed gap would ha e led o a
$13.89 million inc ease in NII, as long- e m asse s exceeded liabili ies, so ha in e es
income would ha e ou weighed he highe unding cos . Howe e , his bene i would ha e
been limi ed because many o hese asse s we e ixed income, educing he bank’s abili y o
ully cap u e he a e inc ease. Ne e heless, he bank’s inancial p oblems and lack o
liquidi y led o i s collapse be o e i could bene i om he long- e m e e sal.
Gi en SVB's signi ican ma u i y misma ch and exposu e o in e es a e isk, Golding
& Lucas (2023) a gue ha pe iodic disclosu e o he du a ion gap should be equi ed o all
medium and la ge banks o enhance egula o y and ma ke o e sigh . They de end ha
s anda dized disclosu es would allow ea ly de ec ion o eme ging isks, helping o p e en
c ises like SVB’s. Addi ionally, hey p opose linking capi al equi emen s o du a ion gap
le els o discou age excessi e in e es a e exposu e, which could ha e p o ided an ea ly
wa ning signal in SVB’s case.
3.3.2. Du a ion Analysis
Since SVB held a la ge p opo ion o i s asse s in in es men secu i ies, conduc ing a
du a ion analysis allows quan i ying he impac o small basis poin inc eases in in e es a es
on hese secu i ies’ alue and, consequen ly, on he bank’s ne wo h.
The 2022 Annual Repo al eady p o ides he weigh ed a e age du a ion o bo h he
AFS and HTM secu i ies po olios, which co esponds o he Macaulay du a ion. Since AFS
secu i ies’ du a ion is 3.6, and HTM secu i ies’ du a ion is 6.2, he es ima ed change in
ma ke alue due o a 0.1% (10 basis poin s) inc ease in in e es a es is as ollows:
Δ𝐴𝐹𝑆 =−3.6*26,069*0.001=−$93.85 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
Δ𝐻𝑇𝑀 =−6.2*91,321*0.001=−$566.19 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑢𝑛𝑟𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑙𝑜𝑠𝑠𝑒𝑠 =−(93.85+566.19)=− $660.04 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
This indica es ha a 0.1% ise in in e es a es would ha e caused almos a $94
million dec ease in he ma ke alue o he AFS secu i ies po olio and a ound a $566
million dec ease in he HTM secu i ies po olio. In o he wo ds, he ma ke p ice o AFS
32

secu i ies would ha e d opped o a ound $25,975 million, while HTM secu i ies would ha e
declined o $90,755 million, leading o a o al o $660 million in addi ional un ealized losses.
By yea -end 2022, SVB al eady epo ed $17.7 billion in un ealized losses on i s
secu i ies po olio (as men ioned in Sec ion 3.2.1.2), o conc e ely $17,699 million, b inging
he o al un ealized losses o $18,350 million a e ac o ing in he addi ional losses. Gi en
ha SVB’s equi y s ood a $16,295 million, hese losses would ha e exceeded he bank’s
capi al base. No ably, only he un ealized losses om AFS secu i ies would ha e been
e lec ed on he balance shee , adjus ing epo ed equi y o $16,201 million. Howe e , i he
bank had been o ced o sell i s en i e secu i ies po olio (as ul ima ely happened), bo h AFS
and HTM losses would ha e been ealized, making i c i ical o SVB o ha e su icien equi y
o abso b hem.
Ne e heless, his du a ion analysis p o ides a simpli ied es ima ion based on a 0.1%
a e inc ease. To assess SVB’s ac ual exposu e mo e accu a ely, i is essen ial o conside
he 24-basis-poin inc ease (0.24 p.p.) in he Fed Funds Ra e om 4.33% o 4.57% be ween
Janua y 1, 2023, and Ma ch 8, 2023 ( he day SVB announced i s balance shee
es uc u ing) (Boa d o Go e no s o he Fede al Rese e Sys em, n.d.). Unde his
scena io, assuming he bank main ained i s secu i ies holdings, he addi ional un ealized
losses would be:
Δ𝐴𝐹𝑆 =−3.6*26,069*0.0024=−$ 225.24 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
Δ𝐻𝑇𝑀 =−6.2*91,321*0.0024=−$1,358.86 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑢𝑛𝑟𝑒𝑎𝑙𝑖𝑧𝑒𝑑 𝑙𝑜𝑠𝑠𝑒𝑠 =−(225.24+1,358.86)=−$1,584.10 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
As a esul , he o al un ealized losses would ha e inc eased o app oxima ely
$19,283 million ($17,699 million + $1,584 million), u he highligh ing SVB’s ex eme
ulne abili y o in e es a e mo emen s. Gi en ha he bank’s o al equi y was only $16,295
million, his mean ha po en ial losses had u he exceeded i s capi al base, ein o cing
deposi o s' conce ns abou SVB’s sol ency and igge ing he bank un.
Had SVB been able o hold i s in es men secu i ies un il ma u i y, i migh ha e
a oided ailu e. Howe e , his scena io was unlikely, as un ealized losses had al eady
su passed i s equi y, making i inc easingly di icul o es o e con idence and main ain
liquidi y.
33
3.4. IRR and LR Managemen E o s
The main p oblem ha con ibu ed o he collapse was he poo managemen o IRR
and LR ac oss all ou lines o de ense, as men ioned in he beginning o his s udy. On he
i s line, many people, such as OOnagh McDonald (2023), o me B i ish Membe o
Pa liamen , highligh SVB Boa d’s lack o inancial and banking se ices knowledge and
expe ience a accep ing he isky and concen a ed business model. Besides, a he
ope a ional le el, he company ocused on sho - e m p o i abili y a he han ensu ing
long- e m s abili y. Decisions such as o e - eliance on HTM secu i ies wi h long ma u i ies, o
closing ou isk hedges when in e es a es we e high o make sho - e m p o i s, ins ead o
holding hem o mi iga e po en ial losses, exposed he bank o signi ican isk.
Fu he mo e, he second line o de ense, consis ing o isk managemen and in e nal
con ol, also ailed o p ope ly manage IRR. Fi s ly, om Ap il 2022 o Janua y 2023, he
company did no ha e a Chie Risk O ice , which u he hinde ed he o e sigh o bo h IRR
and LR. Besides, acco ding o he Fed, he me ics SVB used o assess IRR we e basic and
mos ly o ien ed owa ds NII a ia ions (Ba , 2023). The e o e, hey only con empla ed isk in
he sho - e m, and did no conside he impac on he economic alue o equi y, o he
long- e m. Rega ding LR, he company ailed i s in e nal liquidi y es s bu ook no ac ion,
and had no con ingency unding plan. Ins ead o add essing he p oblems and inding a
solu ion, hey eso ed o mo e elaxed s ess es s o ob ain be e esul s and c ea e a alse
sense o secu i y.
Addi ionally, he hi d line o de ense p o ed o be e y weak. The Fed admi ed ha
SVB’s in e nal audi ailed o hold managemen accoun able o poo isk managemen ,
despi e clea signs o an ine ec i e isk managemen p og am (Ba , 2023). This esul ed in
insu icien independen assu ance ega ding he e ec i eness o isk managemen ,
go e nance, and in e nal con ols. Besides, he audi unc ion did no challenge
managemen ’s assump ions, allowing isky decisions o pe sis unchecked.
Finally, ex e nal o e sigh o SVBFG p o ed inadequa e, as egula o s ailed o de ec
and ac upon SVB’s IRR and LR ulne abili ies and manage ial weaknesses in a imely
manne (Ba , 2023). SVB was supe ised by h ee agencies, namely he Cali o nia
Depa men o Financial P o ec ion and Inno a ion, he Fede al Rese e Bank o San
F ancisco, and he FDIC as he backup ede al egula o , and hey all ailed (Me ick, 2024).
As he bank expanded apidly, supe iso s unde es ima ed i s ulne abili ies, keeping
elaxed capi al and liquidi y equi emen s unde he EGRRCPA. Despi e ising isks, SVB
con inued o be a ed as well-managed, delaying s ic e o e sigh . E en when de iciencies
34
in in e es a e and liquidi y isk managemen we e iden i ied, egula o s ook li le ac ion and
issued no o mal indings (Ba , 2023). Addi ionally, he egula o y amewo k lacked clea
guidance on IRR, allowing banks o igno e un ealized losses, and he EGRRCPA’s elaxed
s anda ds hinde ed o e sigh by exemp ing SVB om s ic e equi emen s, like compu ing
he LCR, making supe iso s less asse i e in en o cing co ec ions.
In conclusion, SVB’s collapse was no only a esul o poo in e nal isk managemen
bu also a ailu e o egula o y o e sigh . While managemen made decisions ha
heigh ened i s exposu e o IRR and LR, supe iso s ailed o in e ene e ec i ely, and
egula o y policies allowed signi ican ulne abili ies o pe sis . This combina ion o in e nal
mismanagemen and ex e nal supe iso y weaknesses c ea ed he condi ions ha ul ima ely
led o SVB’s down all.
4. Conclusions
In conclusion, he case o SVB demons a es how a combina ion o o eseeable
ac o s can lead o a majo c isis when mismanaged. I s balance shee e lec ed a s uc u e
highly exposed o LR and IRR, bo h o which we e easily iden i iable and quan i iable. E en
wi h simple me ics like hose used in his s udy ( a less sophis ica ed han hose employed
by banks), i has been shown ha , by he end o 2022, i was al eady e iden ha he
ins i u ion would ace se ious liquidi y issues, la gely due o i s high exposu e o IRR in a
ising- a e en i onmen . Fu he mo e, i s business model, cha ac e ized by a highly
concen a ed clien base, u he ampli ied i s ulne abili y.
The in e connec edness and apid esponse o SVB’s clien s, ueled by social media,
and combined wi h p edominan ly uninsu ed deposi s, acili a ed he sp ead o panic once
he bank’s p oblems became public. This chain eac ion accele a ed he liquidi y c isis,
o cing SVB o sell asse s a signi ican losses and lea ing i wi h no lexibili y o espond.
Al hough SVB’s in es men s we e concen a ed in low- isk asse s, i s in es men
s a egy did no align wi h he eali y o i s liabili y s uc u e, which was p ima ily composed o
ola ile, sho - e m, o unce ain-ma u i y deposi s. The misma ch be ween asse s and
liabili ies, combined wi h a high concen a ion in bo h unding sou ces and in es men s, as
well as in i s cus ome base, c ea ed he pe ec condi ions o he c isis. Consequen ly, as
in e es a es ose, he alue o i s in es men s declined a mo e han expec ed; when
clien s eac ed, wi hd awals mul iplied; and, lacking lexibili y, he bank was unable o
wi hs and he liquidi y c isis wi hou incu ing massi e losses.
35
SVB's collapse also e eals ailu es ac oss he ou lines o de ense. The i s line
allowed an in es men s a egy misaligned wi h he bank’s unding s uc u e. The second
ailed o iden i y and quan i y isks in a imely manne o implemen e ec i e mi iga ion
measu es. In e nal audi did no exe cise su icien o e sigh o e isk managemen , and
ex e nal supe ision nei he de ec ed no demanded imely co ec i e ac ions. This
combina ion o de iciencies allowed manageable issues o escala e in o a la ge-scale c isis.
Mo eo e , he exis ing egula o y amewo k p o ed inadequa e o an a ypical
ins i u ion like SVB, highligh ing he need o bo h supe ision and egula ion o adap o he
cons an ly e ol ing banking sys em. As iskie , non- adi ional banks eme ge, cu en
o e sigh has epea edly allen sho in p e en ing collapses. Meanwhile, egula o y
esponses, such as bailou s, ha e ein o ced he oo big o ail pe cep ion, po en ially
unde mining inancial s abili y in he long un.
This case unde sco es he impo ance o p uden managemen o IRR and LR, as
well as he need o di e si y bo h unding sou ces and he cus ome base. I also e eals he
signi icance o a well-designed in es men s a egy ha no only seeks p o i abili y bu also
accoun s o po en ial isks and adap s o he eali y o he business. In a sec o as
ulne able as banking, whe e ma u i y misma ches a e an inhe en cha ac e is ic, ha ing
e ec i e mechanisms o iden i y and manage isks is c ucial o p e en ing uncon ollable
c ises.
SVB’s collapse u he e idences ha he s abili y o he inancial sys em depends
no only on he indi idual decisions o each bank bu also on he obus ness o hei in e nal
con ols and he e ec i eness o egula ion and supe ision. When hese ail collec i ely,
e en sol en ins i u ions can ail due o a c isis o con idence wi h sys emic consequences.
5. Re lec ion on he Wo k Done
The analysis o SVB’s collapse p o ides insigh in o he c ucial ole o inancial
s abili y in a democ a ic socie y and i s di ec link o sus ainable de elopmen . A
well- unc ioning banking sys em suppo s economic g ow h, public us , and ins i u ional
anspa ency. This s udy aligns wi h se e al Sus ainable De elopmen Goals (SDGs),
pa icula ly SDG 16: Peace, Jus ice, and S ong Ins i u ions, SDG 8: Decen Wo k and
Economic G ow h, SDG 9: Indus y, Inno a ion, and In as uc u e, and e en SDG 3: Good
Heal h and Well-being.
36
SVB played a key ole in inancing s a ups and inno a i e indus ies (SDG 9),
os e ing en ep eneu ship and inno a ion. Many o i s clien s belonged o he li e sciences
sec o , con ibu ing o ad ancemen s in heal hca e and medical esea ch (SDG 3). The
bank’s ailu e dis up ed unding o bio ech i ms and heal h s a ups, posing isks o
inno a ion in medical ea men s and echnologies. Mo eo e , i s collapse exposed c i ical
weaknesses in isk managemen and egula o y o e sigh , h ea ening inancial s abili y and
economic g ow h (SDG 8 and SDG 9), and ein o cing he need o obus ins i u ions and
anspa en go e nance (SDG 16).
F om a democ a ic pe spec i e, SVB’s case unde sco es he need o inancial
anspa ency, egula o y accoun abili y and esponsible banking p ac ices (SDG 16). A
well- egula ed banking sys em is essen ial no only o p o ec ing deposi o s bu also o
ensu ing economic s abili y and p e en ing c ises ha could hinde inno a ion, job c ea ion,
and social p og ess (SDG 8 and SDG 9).
37

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40
7. Appendix
Appendix 1: Bank ca ego y applicable egula ions and isk managemen equi emen s
Bank
ca ego y
To al Asse
Range
Key Applicable
Regula ions
Main Risk Managemen
Requi emen s
U.S. domes ic
i ms (2022 Q4)
Ca ego y I
Globally
Sys emically
Impo an Banks
(G-SIBs)
$700B in o al
≥
asse s o $75B
≥
in c oss-bo de
ac i i y
- Dodd-F ank Ac
- Regula ion YY
- Basel III
- EPS unde
Fed/OCC/FDIC
- Annual s ess es s
- Addi ional capi al bu e
o GSIBs
- In ensi e sys emic isk
supe ision
- S ic liquidi y
equi emen s (LCR, NSFR)
- Resolu ion planning
- Bank o Ame ica
- Bank o New Yo k
Mellon
- Ci ig oup
- Goldman Sachs
- JPMo gan Chase
- Mo gan S anley
- S a e S ee
- Wells Fa go
Ca ego y II
$700B in o al
≥
asse s o $75B
≥
in ce ain
exposu es
- Dodd-F ank Ac
- Amendmen s
unde EGRRCPA
- Regula ion YY
- Biennial s ess es s
- Full LCR and NSFR
compliance
- In ensi e liquidi y and
capi al supe ision
- Simpli ied esolu ion plans
- No he n T us
Ca ego y III
$250B in o al
≥
asse s o $75B
≥
in speci ic isk
indica o s
( unding,
o -balance-shee
exposu es, e c.)
- Dodd-F ank Ac
- EGRRCPA
- Regula ion YY
- Biennial s ess es s
(se e ely ad e se scena io
equi ed)
- Pa ial LCR and NSFR
compliance (50%)
- Ligh e supe ision
compa ed o Ca ego ies I
and II
- Capi al One
- Cha les Schwab
- PNC Financial
- T uis Financial
- U.S. Banco p
Ca ego y IV
$100B in o al
≥
asse s; does no
mee c i e ia o
Ca ego ies I, II,
o III
- Dodd-F ank Ac
- EGRRCPA
- Regula ion YY
- Biennial s ess es s o
se e ely ad e se scena ios
- No manda o y LCR o
NSFR, bu basic liquidi y
managemen and
con ingency planning
equi emen s
- Mo e limi ed capi al and
liquidi y o e sigh
compa ed o highe
ca ego ies
- SVB Financial
- Ally Financial
- Ame ican Exp ess
- Ci izens Financial
- Disco e
- Fi h Thi d
- Fi s Ci izens
- Hun ing on
KeyCo p
- M&T Bank
- Regions Financial
Banks wi h
< $100B
< $100B in o al
asse s
- EGRRCPA
- Speci ic s a e o
ede al
egula ions
depending on he
ins i u ion ype
(FDIC o OCC)
- Exemp om EPS*
- S anda d supe ision
(adequa e capi al, basic
isk managemen , e c.)
- No equi ed o conduc
s ess es s (al hough some
ins i u ions may pe o m
in e nal es ing)
No es: EPS: Enhanced P uden ial S anda ds. Regula o y equi emen s unde he Dodd-F ank Ac .
Sou ce: Own elabo a ion wi h da a om Dodd-F ank Ac , Regula ion YY, Basel III, EGRRCPA and
Fede al Rese e Supe ision and Regula ion Repo May 2023.
41