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Lessons from the Collapse of Silicon Valley Bank
- 1 Mingde high school, Changsha, 410000, China
* Author to whom correspondence should be addressed.
Abstract
The Federal Reserve's consecutive interest rate hikes led to a decline in the prices of US Treasuries and mortgage-backed securities (MBS), which comprised a significant portion of Silicon Valley Bank (SVB)'s asset portfolio. As a result, SVB experienced substantial floating losses, exceeding its owner's equity, creating immense pressure on its assets and liabilities. The analysis also highlights the simple deposit and asset structures of SVB, with a high proportion of demand deposits and a significant allocation to bonds. The aggressive interest rate hikes by the Federal Reserve, coupled with financing difficulties for startups, accelerated deposit consumption and intensified debt pressure for SVB. Furthermore, the article reveals the low coverage rate of deposit insurance, particularly at SVB, where only 7% of deposits are insured. This adds to the vulnerability of SVB and its depositors. In conclusion, this article examines SVB's balance sheet and interest rate risk exposure, identifies shortcomings in the management supervision system, and provides three reflections on the financial event.
Keywords
Liquidity Gap, Balance Sheet Risk, Interest Rate Risk, Duration Mismatch.
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Cite this article
Peng,G. (2024).Lessons from the Collapse of Silicon Valley Bank.Advances in Economics, Management and Political Sciences,106,42-53.
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