# The Collapse of Silicon Valley Bank and Interest Rate Risk (2023) > The collapse of Silicon Valley Bank was an event in March 2023 in which a US bank serving mainly technology companies was closed after a sudden outflow of deposits. The bank had invested deposits in long-term securities and held growing unrealized losses as interest rates rose. In its review of April 2023, the Federal Reserve Board (FRB) pointed to weaknesses in interest rate risk management and to the removal of interest rate hedges. - URL: https://www.derivatives-compass.org/en/history/svb-collapse/ - Area: History › Major Events - Last reviewed: 2026-10-23 - 日本語版: https://www.derivatives-compass.org/ja/history/svb-collapse/index.md ## Key points - The bank invested deposits in long-term securities, and unrealized losses on them grew as interest rates rose. - When it exceeded its interest rate risk limit, the bank changed its assumption about deposit duration instead of reducing the risk. - It positioned the balance sheet to protect income if rates fell and removed the hedges that protected against rising rates. - With most deposits uninsured and clients concentrated, the outflow came within a short time. - The review pointed to weak risk management by the bank and a slow supervisory response. This case is a reference point when a bank reviews how it measures and limits [interest rate risk](https://www.derivatives-compass.org/en/glossary/interest-rate-risk/) in the banking book and how it sets its hedging policy. ## What happened On March 10, 2023, the California financial regulator (CDFPI) closed Silicon Valley Bank (SVB) and appointed the [Federal Deposit Insurance Corporation](https://www.derivatives-compass.org/en/glossary/fdic/) (FDIC) as receiver[^svb-close]. SVB was the main subsidiary of the holding company SVB Financial Group (SVBFG), and a state-chartered member of the Federal Reserve System. SVBFG's total assets were about USD 212 billion at the end of December 2022[^svb-size]. Below, SVB means the bank and SVBFG means the whole group, including the holding company. SVB and SVBFG were supervised by the [Federal Reserve Board](https://www.derivatives-compass.org/en/glossary/frb/) (FRB) and, under it, the Federal Reserve Bank of San Francisco. On April 28, 2023, the FRB published a review of the causes of the failure, including its own supervision and regulation (the review)[^svb-report]. The review lists the removal of SVBFG's hedges against rising rates as one weakness in its interest rate risk management[^svb-hedge-type]. ## Background ### Deposit growth and long-term securities SVBFG's clients were concentrated in technology and life sciences companies backed by venture capital (VC). More than half of its deposits at the end of December 2022 came from VC-backed companies[^svb-vc]. When VC investment rose in 2021 and early 2022, the funds that clients received were deposited with SVBFG, and its deposits grew. Its total assets grew 271% from the end of 2018 to the end of 2021, against 29% for the banking industry[^svb-growth]. Most deposits were uninsured: about 94% of deposits at the end of December 2022[^svb-uninsured]. SVBFG invested a large part of these deposits in long-dated securities, including mortgage-backed securities issued or guaranteed by the government or government agencies (agency MBS). The average duration of its [held-to-maturity](https://www.derivatives-compass.org/en/glossary/held-to-maturity/) portfolio was 6.2 years at the end of December 2022, and most of it was agency MBS with maturities of 10 years or more[^svb-htm]. | Item (end of December 2022) | SVBFG | Large bank average | | --------------------------------------------- | ----- | ------------------ | | Loans (% of total assets) | 35% | 58% | | Securities (% of total assets) | 55% | 25% | | Held-to-maturity securities (% of securities) | 78% | 42% | | Uninsured deposits (% of deposits) | 94% | 41% | | Common equity Tier 1 ratio | 12% | 10% | The large bank average is the weighted average of bank holding companies and savings and loan holding companies with more than USD 100 billion in assets, excluding the largest banks[^svb-peers]. ### Held-to-maturity securities and unrealized losses Held-to-maturity securities (HTM) are carried at amortized cost, so a fall in market value does not change their balance sheet value. The amount by which the price falls below the purchase level is an unrealized loss. It is disclosed in the financial statements but does not change the asset's balance sheet value. In general, selling part of the HTM portfolio requires reclassifying the whole portfolio as available-for-sale (AFS) and marking it to market[^svb-htm-acct]. When rates began to rise in 2022, unrealized losses on both HTM and AFS securities grew rapidly. Because most securities were in HTM, SVBFG had limited room to adjust its position by selling[^svb-unrealized]. ### Two measures of interest rate risk There are two main measures of interest rate risk. One shows how net interest income (NII) changes over about the next year when rates move by amounts such as 100bp or 200bp, given an assumption about how far deposit rates follow market rates (the deposit beta). The other is [EVE](https://www.derivatives-compass.org/en/glossary/eve/), the difference between the present values of assets and liabilities, which shows the mismatch in their durations over a longer horizon[^svb-metrics]. The risk appetite framework set by SVBFG's board had only an NII measure and no EVE measure. The NII measure covered only a 100bp fall in rates over 12 months. Only parallel shifts of the yield curve were measured, and non-parallel moves were not reported to the asset-liability management committee[^svb-limits]. ## Timeline The main events from March 2022 to April 2023 unfolded in the order shown in Figure 1. **Figure 1: Key dates around the collapse of SVB** The timeline lists the main events around the collapse in chronological order. The filled dot marks the closure. Spacing is not proportional to elapsed time. The events of July and November 2022 and March 12, 2023 are left out of the figure and appear in the table below. The changes to interest rate protection came first, and the outflow and the closure followed within days. | Date | Event | | -------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | | March 2022 | Starts removing hedges that protect NII when rates rise[^svb-hedge] | | April 2022 | Switches to a longer deposit duration assumption, which narrows the duration gap in the model[^svb-assump] | | July 2022 | Removes the remaining hedges[^svb-hedge-july] | | November 2022 | Supervisors say the interest rate risk simulations are unreliable and need improvement[^svb-nov] | | March 8, 2023 | Completes a sale of about USD 21 billion of AFS securities (an after-tax loss of about USD 1.8 billion) and announces a planned USD 2.25 billion equity raise[^svb-mar8] | | March 9, 2023 | More than USD 40 billion of deposits flow out in one day, and outflows of more than USD 100 billion are expected the next day[^svb-mar9] | | March 10, 2023 | The CDFPI closes SVB and appoints the FDIC as receiver[^svb-mar10] | | March 12, 2023 | Actions to protect all depositors are approved, and additional funding is announced[^svb-mar12] | | April 28, 2023 | The FRB publishes its review[^svb-apr28] | ## What the review identified as causes The review ties the failure of SVBFG directly to its board and senior management not managing the risks of the business. It was the result of several factors combined, not of a single one[^svb-cause]. ### Interest rate risk management SVBFG had exceeded its long-term interest rate risk limits on and off since 2017, because of the structural mismatch between long-duration securities and short-duration deposits[^svb-breach]. In April 2022, based on a consultant's study and in-house analysis, SVBFG switched to an assumption that deposits last longer. In the internal model, this narrowed the duration gap between assets and liabilities and made the risk look smaller, but no risk had left the balance sheet. The review says the basis for the assumption was not shown, for four reasons: the recent surge in deposits, the lack of historical data, the shortening of deposit duration as rates rose sharply, and the unusual client base. In its view, SVBFG changed an assumption, not the balance sheet, to change the reported risk[^svb-assump]. ### Removal of interest rate hedges In early 2022, as rates rose rapidly, SVBFG became concerned about a decline in NII if rates fell, because it read the inverted yield curve as a sign of a coming recession and lower rates. It positioned its balance sheet to protect NII against falling rates and did not protect it against rising rates[^svb-pos]. The hedges that SVBFG removed protected NII when rates rose. They also held back NII growth when rates fell. SVBFG saw rising rates as a chance to lock in profits on the hedges, began removing them in March 2022, and removed the rest in July 2022[^svb-hedge-both]. Without the hedges, nothing holds back NII growth if rates fall, and nothing protects NII if rates rise. Removing the hedges lengthened the duration of the securities and worsened the EVE measure throughout 2022. The improvement from the deposit duration assumption was temporary. Rates did rise, non-interest-bearing deposits shifted into interest-bearing ones, the duration of liabilities shortened, and the gap widened again[^svb-eve]. ### Deposit outflows and liquidity On March 8, SVBFG announced the completed securities sale and a planned equity raise as part of a balance sheet restructuring. The same day, Silvergate Capital announced the liquidation of its subsidiary Silvergate Bank, which also affected how depositors saw SVBFG. Uninsured depositors took the March 8 announcements as a sign that SVBFG was in distress and began withdrawing deposits on March 9. The run appears to have been fueled by social media and by the tightly linked network of VC-backed and technology clients, and it moved with unprecedented speed. SVB did not have enough cash or collateral to meet the outflows expected on March 10[^svb-run]. Liquidity management was also weak. After SVBFG became subject to enhanced prudential standards in July 2022, it repeatedly failed its own liquidity stress tests. Management switched to less conservative assumptions, which hid part of the risk[^svb-ilst]. ### Supervision and regulation Supervisors found weaknesses in interest rate risk management in the 2020, 2021, and 2022 examinations but did not issue a supervisory finding until November 2022. They had planned to lower the rating, but SVB failed before the downgrade was finalized[^svb-sup]. On regulation, the FRB's 2019 tailoring of requirements to each large bank lowered the capital and liquidity requirements that applied to SVBFG. The review estimates that under the pre-2019 requirements, SVBFG's high-quality liquid assets would have fallen about 9% short of the [liquidity coverage ratio](https://www.derivatives-compass.org/en/glossary/liquidity-coverage-ratio/) requirement in December 2022. If the rules had required AFS unrealized losses to be reflected in regulatory capital, regulatory capital would have been USD 1.9 billion lower. Higher requirements would not necessarily have prevented the failure, but they would likely have made SVBFG more resilient[^svb-tailor]. ## What changed afterward On March 12, 2023, the US Treasury Secretary approved actions that let the FDIC resolve SVB and Signature Bank in a way that protects all depositors, insured and uninsured. The FRB created a funding program for banks, the Bank Term Funding Program (BTFP), which lends for up to one year against collateral such as Treasuries and agency debt, valued at par. The Treasury said it would make up to USD 25 billion available from the Exchange Stabilization Fund to back the program[^svb-pr]. The review organizes its lessons under four themes: enhancing risk identification, promoting resilience, changing supervisor behavior, and strengthening processes. It notes that these are ideas that may warrant further consideration, not finished proposals. The resilience theme includes reconsidering how interest rate risk is reflected in assessments of regulatory capital[^svb-obs]. Under the Basel framework, interest rate risk in the banking book is not subject to a Pillar 1 capital charge. It is handled under Pillars 2 and 3[^svb-basel]. Its place in the Basel framework is covered in [The Basel Framework and Derivatives](https://www.derivatives-compass.org/en/regulation-global/basel-framework/). [^svb-close]: [Board of Governors of the Federal Reserve System, "Review of the Federal Reserve's Supervision and Regulation of Silicon Valley Bank"](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf) (April 2023), p. 24 (PDF p. 38), "SVB's Failure." [^svb-hedge-type]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf) refers to these only as interest rate hedges and does not state the type of financial instrument (PDF pp. 17, 38, and 77). [^svb-size]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 2 (PDF p. 16), and footnote 27 on p. 17 (PDF p. 31). The state member bank status is also on p. 17. [^svb-report]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), the opening letter (April 28, 2023; PDF pp. 3–4) and p. 5 (PDF p. 19; roles of the Board and Reserve Banks). [^svb-vc]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 19 (PDF p. 33). [^svb-growth]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 19 (PDF p. 33). [^svb-uninsured]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 21 (PDF p. 35). [^svb-htm]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 21 (PDF p. 35). [^svb-peers]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 23 (PDF p. 37), table 1. [^svb-htm-acct]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), pp. 21–22 (PDF pp. 35–36) and footnote 40. [^svb-unrealized]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 22 (PDF p. 36) and figure 9. [^svb-metrics]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 61 (PDF p. 75). [^svb-limits]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 62 (PDF p. 76). [^svb-hedge]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 63 (PDF p. 77). [^svb-assump]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 3 (PDF p. 17) and p. 63 (PDF p. 77). [^svb-hedge-july]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 64 (PDF p. 78). [^svb-nov]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 6 (PDF p. 20). [^svb-mar8]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), pp. 23–24 (PDF pp. 37–38). [^svb-mar9]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 24 (PDF p. 38). [^svb-mar10]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 24 (PDF p. 38). [^svb-mar12]: [Board of Governors of the Federal Reserve System, press release](https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm) (March 12, 2023). [^svb-apr28]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), the cover date and the opening letter. [^svb-cause]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), pp. 2–3 (PDF pp. 16–17) and p. 5 (PDF p. 19). [^svb-breach]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 3 (PDF p. 17). [^svb-pos]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 63 (PDF p. 77), "Balance Sheet Mismanagement." [^svb-hedge-both]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), pp. 63–64 (PDF pp. 77–78). [^svb-eve]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), pp. 63–64 (PDF pp. 77–78). [^svb-run]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 24 (PDF p. 38). [^svb-ilst]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. 3 (PDF p. 17). [^svb-sup]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. ii (PDF p. 8). [^svb-tailor]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), p. iii (PDF p. 9) and p. 13 (PDF p. 27). [^svb-pr]: [Board of Governors of the Federal Reserve System, press release](https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm) (March 12, 2023). [^svb-obs]: [The review](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf), pp. 95–96 (PDF pp. 109–110). [^svb-basel]: [Financial Services Agency of Japan, "Overview of the Basel Framework" (in Japanese)](https://www.fsa.go.jp/policy/basel_ii/baselgaiyou-11.pdf) (August 2026), p. 19, "Interest Rate Risk in the Banking Book (IRRBB)." ## Sources - [Review of the Federal Reserve's Supervision and Regulation of Silicon Valley Bank](https://www.federalreserve.gov/publications/files/svb-review-20230428.pdf) — Board of Governors of the Federal Reserve System - [Federal Reserve Board announces it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors](https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm) — Board of Governors of the Federal Reserve System - [バーゼル規制の概要](https://www.fsa.go.jp/policy/basel_ii/baselgaiyou-11.pdf) — 金融庁