The fall of SVB: a new textbook case in asset-liability management
The failure of Silicon Valley Bank illustrates the interest-rate and liquidity risks of a poorly hedged balance sheet — an asset-liability management crisis.
By Didier Gerbault
Between 2020 and 2021, Silicon Valley Bank’s deposits tripled to $180bn, driven by technology-sector liquidity. In March 2023, the bank collapsed within days.
Poorly managed interest-rate risk
The bank’s long-dated securities portfolio was highly vulnerable to rising rates. A 200bp increase would have improved its margin by 3.5%, but rates rose by more than 400bp — the steepest increase in forty years.
A flash liquidity crisis
On 9 March 2023, $42bn was withdrawn in a single day — a quarter of deposits. Classified as a small bank, SVB was exempt from LCR and NSFR liquidity ratio calculations, masking its vulnerabilities.
Invisible latent losses
Latent losses on held-to-maturity securities were not reflected in regulatory capital, sustaining an illusion of solvency.