Risk management at Silicon Valley Bank

The unexpected collapse of Silicon Valley Bank (SVB) had a significant impact on the venture capital market. Founded in 1983, SVB grew into the 16th largest bank in the US, with $212 billion in assets and $173 billion in total deposits by the end of 2022. Between 2019 and 2021, SVB tripled in size, largely due to its focus on VC-backed tech, life science companies and high VC deal activity. Its deposit balances more than tripled from 2019 to 2023, resulting in SVB's liabilities being predominantly comprised of deposits, 94% of which were uninsured. To manage the growing deposit base, SVB invested in securities. However, in March 2022, the Federal Reserve raised interest rates to combat inflation, leading to a drop in fixed-income security prices and affecting growth projections. As interest rates rose, many clients withdrew their deposits to meet liquidity requirements for funding operations. SVB's securities portfolio was greatly affected, resulting in large unrealized losses. By September 2022, SVB was technically insolvent on a mark-to-market basis, but the situation was not considered fatal as the securities portfolio was expected to unwind over time. By February 2023, SVB's deposits had further fallen, and to accommodate the outflows, SVB sold $21 billion of its securities, incurring a $1.8 billion after-tax loss. This negatively impacted the bank's regulatory capital position and a planned capital raise failed. Consequently, on March 8, SVB announced its precarious financial condition, triggering a massive bank run as depositors without insurance withdrew their funds en masse. SVB experienced a deposit outflow exceeding $40 billion on March 9. Fearing further outflows, SVB alerted regulatory authorities about its inability to meet the cash or collateral demands. Consequently, the California Department of Financial Protection and Innovation (CDFPI) shut down SVB operations on March 10, appointing the FDIC as the official receiver.