FIN 651: Financial Institutions Management

Assignment on
Non Deposit Sources of Fund

Submitted to
Dr. Towfic Ahmad Chowdhury
Adjunct Faculty
Graduate School of Management
BRAC University

Submitted by

Name ID
Nehazee Ahmed 21264052
Md. Ahad Shahriar 21264110
Tashpia Hossain 21264070

Date of Submission: 28th March 2023

Question – Why Silicon Valley Bank failed?

Answer:

Silicon Valley Bank (SVB) was the 16th largest bank in the United States and the largest bank by
deposits in Silicon Valley which is headquartered in Santa Clara, California. It has failed on
March 10, 2023 and the Federal Deposit Insurance Corporation (FDIC) currently oversees its
holdings. Their main customers were private equity firms and IT startups and we know that the
IT industry flourished at the time of COVID. Due to the war and global economic crisis, the
inflation began to rise and to control that Federal Reserve has raised interest rates which is a
common practice. In 2022, total loan was $74,250 million and out of this $41,269 million
(55.6%) were given to the private equity firms and startups. Also, non-interest-bearing demand
in 2019 was more than $40 million and in 2021, it has gone up to more than $125 million. If we
look at their balance sheet, SVB has invested majority of their deposit, around 77% (2021) and
76% (2022) in HTM or long-term bonds hoping for positive outcome but due to the increase in
interest rates, the bond prices started to fall as the interest rates and bond prices have an inverse
relationship. Previously, in 2019 out of total investment, in HTM it was about 55%. Majority of
the clients started taking money which leads Silicon Valley Bank looking for ways to meet its
customer’s withdrawals. Initially that was not a huge issue, but the withdrawals started requiring
the bank to start selling its own assets to meet customer withdrawal requests. As the SVP
customers were fearful of a bank failure since their deposits were over $250,000 which is the
government-imposed limit on deposit insurance. SVB shares fall sharply after $1.8 billion in
surprise bond losses according to some news on 9 th March, 2023 and to recover this, SVB has
tried to raise funds but they have failed to do so and the bank got collapsed.
 References

 American Banker. (2023, March 15). SVB shares fall sharply after $1.8B in surprise
bond losses. American Banker. https://www.americanbanker.com/news/svb-shares-fall-
sharply-after-1-8b-in-surprise-bond-losses#:~:text=SVB%20Financial%20said
%20Wednesday%20that,Reserve's%20stance%20on%20monetary%20policy.

 The Guardian. (2023, March 17). Why Silicon Valley Bank collapsed: SVB fail. The
Guardian. https://www.theguardian.com/business/2023/mar/17/why-silicon-valley-bank-
collapsed-svb-fail