What Happened to SVB? Not a 2008 Repeat Story

24 March 2023
Dr. Faten Sabry, William Hrycay, and Sungi Lee

In March 2023, Silicon Valley Bank (SVB), the 16th largest bank in the United States, collapsed, and the FDIC intervened. A few days later, the FDIC decided to make depositors whole even though most of the deposits were over the FDIC insurance amount.

The collapse of SVB was triggered by the realization of interest rate risk when its portfolio lost value as the Federal Reserve increased interest rates, leading to a rush of withdrawals and the ensuing bank run. This is different than the 2008 credit crisis that led to the collapse of the financial system worldwide. SVB’s investments were mainly in Treasuries and agency securities, which are thought of as safe investments, but that does not mean they cannot decrease in value, such as when interest rates rise. Managing the risk of fixed income instruments includes, but is not limited to, the analysis of duration and convexity. Questions about SVB’s management of its interest rate risk are likely to be important in upcoming regulatory investigations and in litigation.

In their recently published white paper and Law360 article, Chair of NERA's Global Securities and Finance Practice Dr. Faten Sabry, Associate Director William Hrycay, and Senior Consultant Sungi Lee examine SVB’s collapse, address differences between this crisis and the 2008 crisis, and suggest questions that regulators may raise regarding SVB’s collapse.