個案資料

On March 24, 2015, the chief executive officer of SVB Financial Group Inc., the parent company of Silicon Valley Bank, was testifying to a US Senate committee. His goal was to provide evidence in support of raising the threshold of US$50 billion in assets, for Silicon Valley Bank’s application for enhanced prudential standards under the Dodd-Frank Act. Silicon Valley Bank was above the threshold of $10 billion for some enhanced prudential standards, and close to the $50 billion cut-off for the full array of enhanced prudential standards. By the end of 2021, Silicon Valley Bank still fell below strict scrutiny from the enhanced prudential standards, despite having experienced rapid growth since the US Senate testimony. With the rapid growth of its deposits, the bank was facing a dilemma. Given the nearly zero rates on short-term bonds as of the end of 2021, should Silicon Valley Bank chase the higher yields provided by longer-term bonds and accept higher interest rate risk? What risk management practices should the bank follow? With its deposit base largely uninsured, would the bank’s risk exposure become an issue?

This case is designed for courses at the first-year MBA and senior undergraduate levels. Students should have already taken introductory courses in accounting and finance. This case study provides an opportunity for students to understand and discuss various issues related to banking, fixed income, and risk management. Specifically, after working through the case and assignment questions, students will be able to<ul><li>explain the standard business model of banks, including what their liabilities and assets are;</li><li>describe the role of FDIC insurance and explain the relation with bank runs;</li><li>calculate measures of interest rate risk for individual fixed income securities and portfolios of fixed income securities;</li><li>interpret and assess the amount of interest rate risk taken on in a portfolio;</li><li>understand the framework of risk management in banks, including the role of corporate governance; and </li><li>evaluate the effectiveness of the use of interest rate swaps in hedging interest rate risk.</li></ul>

• banking, risk management, hedging