SVB Failure: Causes and Results on Banking Industry

Omer Omer

International Journal of Economics and Financial Research, 2023, vol. 9, issue 2, 9-19

Abstract: The paper aims to answer important questions about What is, How, and why Silicon Valley Bank (SVB) failed? Are other U.S. banks at risk? Is the SVB turmoil a repeat of the 2008 crisis? The results found that SVB was founded in 1983 as a bank specializing to enhance tech startups. It was the 16th largest U.S. bank, with around USD211 billion in assets and USD173 billion in deposits in 2022. Since 2021 SVB achieved a high accumulation of deposits. It invested heavily in long-dated T-Bonds and when the Fed raise interest rates as part of its monetary policy to fight inflation, the market values of SVB securities declined dramatically. Depositors began to rush to withdraw funds. SVB was forced to sell their T-bonds at a significant loss and failed to meet customers’ withdrawals and was exposed to a bank run on March 10. SVB fail because of mismanagement of liquidity and interest rate risk, ineffective board of directors, and the Fed’s unsuccessful to take forceful enough action. Although the U.S. President and the Vice Chair of the Fed System indicated that the banking system is still sound and far from repeating the 2008 crisis, Signature Bank and First Republic Bank failed. The paper recommends the regulators review the supervisory standards of banks, tech startups, and emerging markets. Moreover, obligation banks to activate the application of internal audit, bank governance, and stress testing, and issue appropriate decisions promptly. Policymakers must pay attention to how the economic sectors will respond to changes in policies applied.

Keywords: SVB failure; Signature bank; First republic bank; Liquidity risk; Interest rate risk (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:arp:ijefrr:2023:p:9-19

DOI: 10.32861/ijefr.92.9.19

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