Silicon Valley Bank: Victim of Risk, Regulation, or Governance?

By 2023, Silicon Valley Bank (SVB) in Santa Clara, California, had been successfully providing financial services to venture capitalists and private equity firms for 40 years. The bank, which catered to clients from the innovation and technology sectors, ran into problems and was taken over by the Federal Deposit Insurance Corporation (FDIC) on March 10, 2023, becoming the second largest US bank to fail after Washington Mutual collapsed in 2008. The US Federal Reserve System (FRS), while being criticized for having lax standards that contributed to the catastrophe, maintained that it had provided several warnings. The United States Senate Banking Committee planned to organize a formal congressional hearing to investigate the nature of SVB’s failures and flaws and to question the FRS and evaluate the regulator’s response to the same. Everyone involved was shocked by the collapse of a large bank like SVB. Was it an erroneous business model that concentrated on sector-specific clients that had led to SVB’s downfall? Or was the failure due to lax banking rules? Could a poor regulatory environment be held responsible? Another possibility was that SVB’s weak risk management oversights and controls could be blamed. What could SVB have done to avoid the disaster? What lessons could the banking sector learn to avoid such collapses in the future?

This case may be used for courses on topics such as commercial bank management, financial institutions and markets, corporate banking and trade finance, asset-liability and treasury management, and risk management in banking at the post-graduate and executive level. Students should be able to understand the five broad themes in this case: (1) business models of commercial banks; (2) asset-liability management; (3) the interplay of interest-rate risks; (4) corporate governance; and (5) the role of regulatory supervision. After working through the case and assignment questions, students will be able to do the following:<br><br><ul><li>Assess the potential challenges and risks associated with the business model of commercial banks operating in niche markets.</li><li>Examine how internal governance and regulatory entities contribute to the prompt identification and notification regarding probable risks to prevent future mishaps.</li><li>Describe and evaluate the asset-liability management (ALM) practices used by financial institutions to mitigate financial risks.</li></ul>

• ALM practices
• asset-liability management
• assets
• banking regulations
• business model
• commercial banks
• corporate governance
• FDIC takeover
• federal reserve system
• financial collapse
• financial institutions
• financial risks
• interest rate risk
• liabilities
• liquidity management
• liquidity risk
• niche markets
• regulatory oversight
• regulatory supervision framework
• senate banking committee