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Board Report: 2023-SR-B-013 September 25, 2023
Silicon Valley Bank—which once had over $200 billion in total assets—failed in March 2023. SVB went into receivership and cost the Deposit Insurance Fund an estimated $16.1 billion.
SVB failed for several reasons. It was vulnerable to the business cycles of its customer base—concentrated in science and tech—with a high share of uninsured deposits and large, irregular cash flows. SVB also invested a large portion of deposits in securities with long-term maturities, and experienced significant unrealized losses on those securities as interest rates rose. Further, the bank's management and board of directors failed to manage the risks of its rapid, unchecked growth and concentrations. Finally, management's ineffective communication about the bank's financial moves, coupled with news of Silvergate Bank's liquidation, led to a $40 billion run on deposits with additional withdrawal requests totaling $100 billion that SVB could not meet.
The Board and the Federal Reserve Bank of San Francisco were responsible for ensuring that SVB had safe and sound business practices. However, their supervisory approach did not evolve with SVB's growth and increased complexity—for example, there were insufficient examiner resources, and examiners lacked the requisite expertise for supervising a large, complex institution. Further, the Board and FRB San Francisco did not effectively transition SVB between supervisory portfolios. Finally, examiners did not closely scrutinize the risks that rising interest rates posed to SVB's investments.
Our report makes recommendations to improve the Board and FRB San Francisco's supervisory processes.