Review of the Federal Reserve's Supervision and Regulation of Silicon Valley Bank (Part 1 of 2)

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April 28, 2023

Re: Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley
Bank

Silicon Valley Bank (SVB) failed because of a textbook case of mismanagement by the
bank. Its senior leadership failed to manage basic interest rate and liquidity risk. Its board
of directors failed to oversee senior leadership and hold them accountable. And Federal
Reserve supervisors failed to take forceful enough action, as detailed in the report.

Our banking system is sound and resilient, with strong capital and liquidity. And in some
respects, SVB was an outlier because of the extent of its highly concentrated business
model, interest rate risk, and high level of reliance on uninsured deposits; however,
SVB’s failure demonstrates that there are weaknesses in regulation and supervision that
must be addressed. Regulatory standards for SVB were too low, the supervision of SVB
did not work with sufficient force and urgency, and contagion from the firm’s failure
posed systemic consequences not contemplated by the Federal Reserve’s tailoring
framework.

Following SVB’s failure, we must strengthen the Federal Reserve’s supervision and
regulation based on what we have learned. This report represents the first step in that
process—a self-assessment that takes an unflinching look at the conditions that led to the
bank’s failure, including the role of Federal Reserve supervision and regulation.
Individuals who were not involved in the supervision of SVB conducted the review, and I
oversaw it.

The four key takeaways of the report are:
1. Silicon Valley Bank’s board of directors and management failed to manage their
risks.
2. Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon
Valley Bank grew in size and complexity.
3. When supervisors did identify vulnerabilities, they did not take sufficient steps to
ensure that Silicon Valley Bank fixed those problems quickly enough.
4. The Board’s tailoring approach in response to the Economic Growth, Regulatory
Relief, and Consumer Protection Act (EGRRCPA) and a shift in the stance of
supervisory policy impeded effective supervision by reducing standards,
increasing complexity, and promoting a less assertive supervisory approach.
2

Before discussing specific supervisory and regulatory changes that we should consider, I
would like to touch on broader issues exposed by the failure of the bank.

First, the combination of social media, a highly networked and concentrated depositor
base, and technology may have fundamentally changed the speed of bank runs. Social
media enabled depositors to instantly spread concerns about a bank run, and technology
enabled immediate withdrawals of funding.

Second, as I have previously stated, a firm’s distress may have systemic consequences
through contagion—where concerns about one firm spread to other firms—even if the
firm is not extremely large, highly connected to other financial counterparties, or
involved in critical financial services.

Third, this experience has emphasized why strong bank capital matters. While the
proximate cause of SVB’s failure was a liquidity run, the underlying issue was concern
about its solvency.

As risks in the financial system continue to evolve, we need to continuously evaluate our
supervisory and regulatory framework and be humble about our ability to assess and
identify new and emerging risks. That is why we need to bolster resiliency broadly in the
financial system, and not focus solely on specific risk drivers. Some steps already in
progress include the holistic review of our capital framework; implementation of the
Basel III endgame rules; the use of multiple scenarios in stress testing; and a long-term
debt rule to improve the resiliency and resolvability of large banks. We plan to seek
comment on these proposals soon. Other possible steps based on what we have learned
from the SVB report, SVB’s failure, and its contagion, will follow later.

Stronger Supervisory Framework
Our first area of focus will be to improve the speed, force, and agility of supervision. As
the report shows, in part because of the Federal Reserve’s tailoring framework and the
stance of supervisory policy, supervisors did not fully appreciate the extent of the bank’s
vulnerabilities, or take sufficient steps to ensure that the bank fixed its problems quickly
enough.

In SVB’s case, the firm’s rapid growth but slow transition to heightened standards
contributed to the slow identification of risks and slow pace of supervisor action. We
need to evaluate how to ensure that supervision intensifies at the right pace as a firm
grows in size or complexity.

Within our supervisory structure, we should introduce more continuity between the
portfolios, so that as a bank grows in size and changes its supervisory portfolio, the bank
will be ready to comply with heightened regulatory and supervisory standards more
quickly, rather than providing a long transition to comply with those heightened
standards.

We also need to be attentive to the particular risks that firms with rapid growth,
concentrated business models, or other special factors might pose regardless of asset size.
As I have previously announced, the Federal Reserve has begun to build a dedicated
novel activity supervisory group to focus on the risks of novel activities (such as fintech
or crypto activities) as a complement to existing supervisory teams. As we do so, we will
3

identify whether there are other risk factors—such as high growth or concentration—that
warrant additional supervisory attention.

Once issues are identified, they should be addressed more quickly, both by the bank and
by supervisors. Today, for example, the Federal Reserve generally does not require
additional capital or liquidity beyond regulatory requirements for a firm with inadequate
capital planning, liquidity risk management, or governance and controls. We need to
change that in appropriate cases. Higher capital or liquidity requirements can serve as an
important safeguard until risk controls improve, and they can focus management’s
attention on the most critical issues. As a further example, limits on capital distributions
or incentive compensation could be appropriate and effective in some cases.

We need to develop a culture that empowers supervisors to act in the face of uncertainty.
In the case of SVB, supervisors delayed action to gather more evidence even as
weaknesses were clear and growing. This meant that supervisors did not force SVB to fix
its problems, even as those problems worsened.

Last, we need to guard against complacency. More than a decade of banking system
stability and strong performance by banks of all sizes may have led bankers to be
overconfident and supervisors to be too accepting. Supervisors should be encouraged to
evaluate risks with rigor and consider a range of potential shocks and vulnerabilities, so
that they think through the implications of tail events with severe consequences.

Stronger Regulatory Framework
Our second area of focus will be to raise the baseline for resilience. Our experience
following SVB’s failure demonstrated that it is appropriate to have stronger standards
apply to a broader set of firms. As a result, we plan to revisit the tailoring framework,
including to re-evaluate a range of rules for banks with $100 billion or more in assets.

In addition, let me go through some specific rules that should be modified or re-
evaluated.

We need to evaluate how we supervise and regulate a bank’s management of interest rate
risk. While interest rate risk is a core risk of banking that is not new to banks or
supervisors, SVB did not appropriately manage its interest rate risk, and supervisors did
not force the bank to fix these issues quickly enough.

In addition, we are also going to evaluate how we supervise and regulate liquidity risk,
starting with the risks of uninsured deposits. Liquidity requirements and models used by
both banks and supervisors should better capture the liquidity risk of a firm’s uninsured
deposit base. For instance, we should re-evaluate the stability of uninsured deposits and
the treatment of held to maturity securities in our standardized liquidity rules and in a
firm’s internal liquidity stress tests. We should also consider applying standardized
liquidity requirements to a broader set of firms. Any adjustments to our liquidity rules
would, of course, go through normal notice and comment rulemaking and have
appropriate transition rules, and thus would not be effective for several years.

With respect to capital, we are going to evaluate how to improve our capital requirements
in light of lessons learned from SVB. For instance, we should require a broader set of
firms to take into account unrealized gains or losses on available-for-sale securities, so
that a firm’s capital requirements are better aligned with its financial positions and risk.
4

Again, these changes would not be effective for several years because of the standard
notice and comment rulemaking process and would be accompanied by an appropriate
phase-in.

Stress testing is a key supervisory tool, and tailoring changes reduced its coverage and
timeliness for some firms; we will be revisiting this approach.

Oversight of incentives for bank managers should also be improved. SVB’s senior
management responded to the incentives approved by the board of directors; they were
not compensated to manage the bank’s risk, and they did not do so effectively. We should
consider setting tougher minimum standards for incentive compensation programs and
ensure banks comply with the standards we already have.

Closing
Contagion from the failure of SVB threatened the ability of a broader range of banks to
provide financial services and access to credit for individuals, families, and businesses.
Fast and forceful action by the Federal Reserve, the Federal Deposit Insurance
Corporation, and the Treasury Department helped to contain the damage, but weaknesses
in supervision and regulation must be fixed.

In doing so, we should be humble about our ability—and that of bank managers—to
predict how losses might be incurred, how a future financial crisis might unfold, and what
the effect of a financial crisis might be on the financial system and our broader economy.
Greater resilience will guard against the risks that we may not fully appreciate today.

This report is a self-assessment, a critical part of prudent risk management, and what we
ask the banks we supervise to do when they have a weakness. It is essential for
strengthening our own supervision and regulation. I am grateful to the staff who
conducted the review and prepared the report.

I also appreciate that others will have their own perspectives on this episode. We
welcome external reviews of SVB’s failure, as well as congressional oversight, and we
intend to take these into account as we make changes to our framework of bank
supervision and regulation to ensure that the banking system remains strong and resilient.

Sincerely,

Michael S. Barr
Review of the Federal Reserve’s
Supervision and Regulation
of Silicon Valley Bank
April 2023

B O A R D O F G OV E R N O R S O F T H E F E D E R A L R E S E RV E S Y S T E M
The Federal Reserve System is the central
bank of the United States. It performs five key
functions to promote the effective operation
of the U.S. economy and, more generally, the
public interest.

The Federal Reserve
conducts the nation’s monetary policy to promote maximum employment
and stable prices in the U.S. economy;
promotes the stability of the financial system and seeks to minimize
and contain systemic risks through active monitoring and engagement in
the U.S. and abroad;
promotes the safety and soundness of individual financial institutions
and monitors their impact on the financial system as a whole;
fosters payment and settlement system safety and efficiency through
services to the banking industry and the U.S. government that facilitate
U.S.-dollar transactions and payments; and
promotes consumer protection and community development through
consumer-focused supervision and examination, research and analysis of
emerging consumer issues and trends, community economic development
activities, and administration of consumer laws and regulations.

To learn more about us, visit www.federalreserve.gov/aboutthefed.htm.
i

Key Takeaways
This report examines the factors that contributed to the failure of Silicon Valley Bank. The report
focuses on the role of the Federal Reserve, which was the primary federal supervisor for the bank
and the bank holding company.

There are four key takeaways from the report:

1. Silicon Valley Bank’s board of directors and management failed to manage their risks.

The report shows that Silicon Valley Bank was a highly vulnerable firm in ways that both its board
of directors and senior management did not fully appreciate. These vulnerabilities—foundational
and widespread managerial weaknesses, a highly concentrated business model, and a reliance
on uninsured deposits—left Silicon Valley Bank acutely exposed to the specific combination of
rising interest rates and slowing activity in the technology sector that materialized in 2022 and
early 2023.

The full board of directors did not receive adequate information from management about risks at
Silicon Valley Bank and did not hold management accountable for effectively managing the firm’s
risks. The bank failed its own internal liquidity stress tests and did not have workable plans to
access liquidity in times of stress. Silicon Valley Bank managed interest rate risks with a focus on
short-run profits and protection from potential rate decreases, and removed interest rate hedges,
rather than managing long-run risks and the risk of rising rates. In both cases, the bank changed
its own risk-management assumptions to reduce how these risks were measured rather than fully
addressing the underlying risks.

On March 8, 2023, Silicon Valley Bank announced a balance sheet restructuring that included the
sale of certain securities and an intention to raise capital. This occurred during a period of height-
ened uncertainty for the technology sector, and the bank faced a run by depositors on March 9.
Deposit outflows were over $40 billion on March 9, and management expected $100 billion more
the next day. This unprecedented outflow led the California Department of Financial Protection and
Innovation (CDFPI) to close the bank on March 10.

2. Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank
grew in size and complexity.

While the firm was growing rapidly from $71 billion to over $211 billion in assets from 2019 to
2021, it was not subject to heightened supervisory or regulatory standards. The Federal Reserve
ii Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

did not appreciate the seriousness of critical deficiencies in the firm’s governance, liquidity, and
interest rate risk management. These judgments meant that Silicon Valley Bank remained well-
rated, even as conditions deteriorated and significant risk to the firm’s safety and soundness
emerged.

For governance, Silicon Valley Bank was rated satisfactory in terms of management for both the
holding company and the bank from 2017 through 2021, despite repeated observations of weak-
ness in risk management. In terms of liquidity, Silicon Valley Bank was rated strong in that same
period and subject to limited-scope liquidity reviews as part of guidelines for smaller firms, despite
its significant asset growth and idiosyncratic business model.

3. When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure
that Silicon Valley Bank fixed those problems quickly enough.

As Silicon Valley Bank continued to grow and faced heightened standards in 2021, the regulations
provided for a long transition period for Silicon Valley Bank to meet those higher standards and
supervisors did not want to appear to pull forward large bank standards to smaller banks in light
of policymaker directives. This transition meant that the new supervisory team needed consider-
able time to make its initial assessments.

After these initial assessments, liquidity ratings remained satisfactory despite fundamental weak-
nesses in risk management and mounting evidence of a deteriorating position. The combination of
internal liquidity stress testing shortfalls, persistent and increasingly significant deposit outflows,
and material balance sheet restructuring plans likely warranted a stronger supervisory message
in 2022.

With regard to interest rate risk management, supervisors identified interest rate risk deficiencies
in the 2020, 2021, and 2022 Capital, Asset Quality, Management, Earnings, Liquidity, and Sensi-
tivity to Market Risk (CAMELS) exams but did not issue supervisory findings. The supervisory team
issued a supervisory finding in November 2022 and planned to downgrade the firm’s rating related
to interest rate risk, but the firm failed before that downgrade was finalized.

Overall, the supervisory approach at Silicon Valley Bank was too deliberative and focused on
the continued accumulation of supporting evidence in a consensus-driven environment. Further,
the rating assigned to Silicon Valley Bank as a smaller firm set the default view of the bank as
a well-managed firm when a new supervisory team was assigned in 2021 after the firm’s rapid
growth. This made downgrades more difficult in practice.
Key Takeaways iii

4. The Board’s tailoring approach in response to the Economic Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA) and a shift in the stance of supervisory policy impeded
effective supervision by reducing standards, increasing complexity, and promoting a less asser-
tive supervisory approach.

Over the same period that Silicon Valley Bank was growing rapidly in size and complexity, the
Federal Reserve shifted its regulatory and supervisory policies due to a combination of external
statutory changes and internal policy choices.

In 2019, following the passage of EGRRCPA, the Federal Reserve revised its framework for super-
vision and regulation, maintaining the enhanced prudential standards (EPS) applicable to the eight
global systemically important banks, known as G-SIBs, but tailoring requirements for other large
banks. For Silicon Valley Bank, this resulted in lower supervisory and regulatory requirements,
including lower capital and liquidity requirements. While higher supervisory and regulatory require-
ments may not have prevented the firm’s failure, they would likely have bolstered the resilience of
Silicon Valley Bank.

Over the same period, supervisory policy placed a greater emphasis on reducing burden on firms,
increasing the burden of proof on supervisors, and ensuring that supervisory actions provided
firms with appropriate due process. Although the stated intention of these policy changes was to
improve the effectiveness of supervision, in some cases, the changes also led to slower action by
supervisory staff and a reluctance to escalate issues.
v

Contents
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Silicon Valley Bank Financial Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Federal Reserve Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Other Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Issues for Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Evolution of Silicon Valley Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SVBFG’s Rapid Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SVBFG and the Tech Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SVBFG Relative to Peers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SVB’s Failure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
External Views. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Federal Reserve Supervision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Supervisory Portfolio Structure and Supervisory Activities. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Overview of Supervisory Views . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Supervision of SVBFG by Critical Risk Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Governance and Risk Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Liquidity Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Interest Rate Risk and Investment Portfolio Supervision. . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Additional Topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Federal Reserve Surveillance and Risk Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Incentive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Assessment of the Federal Reserve Approval of SVB Financial Group Applications . . . . . . . . 76
Regulation K Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Tying. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Volcker Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Federal Reserve Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Regulatory Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Regulations that Applied to SVBFG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Pro Forma Impact of EGRRCPA and Tailoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
vi Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Observations for Federal Reserve Oversight. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Lessons Learned from Earlier Bank Failures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Issues for Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
vii

Preface
On March 13, 2023, Vice Chair for Supervision Michael S. Barr requested a review of the failure
of Silicon Valley Bank (SVB), including a review of the regulations applicable to firms such as SVB,
particularly for fast-growing firms; a review of the supervisory regime; and an evaluation of whether
supervisors had sufficient tools to address the weaknesses at SVB.

This report examines the failure of SVB, its holding company Silicon Valley Bank Financial Group
(SVBFG), and the oversight provided by the Federal Reserve through its supervisory and regulatory
authorities. The analysis considers the evolution of SVB and SVBFG from 2017 through March 8,
2023; the economic and financial environment in which they operated; and Federal Reserve over-
sight. The report covers both the regulation and supervision of SVB and SVBFG and focuses on
the issues most pertinent to the failure of SVB.

The report does not review the events that occurred after March 8, 2023, including the closure
of SVB on March 10, 2023, by the California Department of Financial Protection and Innovation
(CDFPI), and the actions on March 12, 2023, by the U.S. Department of the Treasury, the Board of
Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation.1

This report was prepared by staff within the Federal Reserve System with expertise in supervision,
financial analysis, policy analysis, legal issues, economics, business intelligence, and records
management who were not involved in direct supervision of SVB or SVBFG. Staff participating in
this report had full access to examine the supervisory record, review internal communications,
perform independent analysis, and interview relevant Federal Reserve staff.

Two caveats are warranted. This report was written with the benefit of hindsight on the particular
facts and circumstances that proved most relevant for SVB and SVBFG. The report was prepared
in a compressed time frame from March 13, 2023, through April 28, 2023, and further work over
a longer period could draw additional or different conclusions.

As part of this report, the Board is making available a wide range of supervisory material that
is typically treated as confidential supervisory information (CSI). Due to the exceptional nature
of these events, including the failure of SVB, the Board has determined that releasing this
information is in the best interest of the public. The information is available at https://www.
federalreserve.gov/supervisionreg/silicon-valley-bank-review-supervisory-materials.htm.

1
Board of Governors of the Federal Reserve System, U.S. Department of the Treasury, Federal Deposit Insurance Cor-
poration, “Joint Statement by Treasury, Federal Reserve, and FDIC,” March 12, 2023, https://www.federalreserve.gov/
newsevents/pressreleases/monetary20230312b.htm.
1

Executive Summary
On March 10, 2023, Silicon Valley Bank (SVB), a subsidiary of Silicon Valley Bank Financial Group
(SVBFG), was closed by the California Department of Financial Protection and Innovation (CDFPI).
Regulation and supervision are designed to lower the probability of distress at banks and their
holding companies, but SVB, a bank subject to heightened standards because of its size, failed
nonetheless.2

This report examines the multiple factors that contributed to the failure of SVBFG and reviews the
role of the Federal Reserve, which was the primary federal supervisor for the holding company and
the bank. The report covers the Federal Reserve’s supervisory and regulatory responsibilities with
respect to the Federal Reserve’s safety-and-soundness objectives.

The report finds that four key factors contributed to the failure of SVBFG. This executive summary
provides more details on each, which include:

1. Silicon Valley Bank’s board of directors and management failed to manage their risks;

2. Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew
in size and complexity;

3. When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that
Silicon Valley Bank fixed those problems quickly enough; and

At the core of the Federal Reserve’s oversight framework is the expectation that boards of direc-
tors of supervised firms provide effective oversight, and that management is responsible for daily
and operational decisions.3 Supervisors assess the effectiveness of those individuals and the
bank’s risk-management processes but do not manage or run the banks. The objectives of boards
and management are not perfectly aligned with those of the public, which is why prudential over-
sight through supervision and regulation is essential.

2
Throughout this report, Silicon Valley Bank Financial Group, the holding company, is referred to as “SVBFG.” Silicon
Valley Bank, the state member bank, is referred to as “SVB.” SVBFG filed for bankruptcy on March 17, following the
failure of SVB. Where context requires, the term SVBFG refers to both the holding company and the consolidated organi-
zation, inclusive of SVB.
3
See Board of Governors of the Federal Reserve System, “Supervisory Guidance on Board of Directors’ Effective-
ness,” SR letter 21-3/CA letter 21-1 (February 26, 2021), https://www.federalreserve.gov/supervisionreg/srletters/
SR2103.htm.
2 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

The report shows that SVBFG was a highly vulnerable firm in ways that both SVBFG’s board of
directors and senior management and Federal Reserve supervisors did not fully appreciate. These
vulnerabilities—foundational and widespread managerial weaknesses, a highly concentrated busi-
ness model, and a reliance on uninsured deposits—left SVBFG acutely exposed to the specific
combination of rising interest rates and slowing activity in the technology sector that materialized
in 2022 and early 2023.

Federal Reserve supervisors did not fully appreciate these vulnerabilities as the firm grew in size
and complexity. After risks were identified, supervisors did not take sufficient steps to ensure that
SVBFG fixed them in a timely fashion. This reflects a complex combination of many factors within
the Federal Reserve, including delays in applying more stringent standards as SVBFG grew rap-
idly, the resources devoted to SVBFG supervision, an approach that emphasized consensus and
the continued accumulation of evidence even as SVBFG deteriorated, and a shift in the stance of
supervision policy that was amplified by the COVID-19 pandemic.

A consolidated timeline of key events is available at the end of this section (figure 1).

Silicon Valley Bank Financial Group
SVBFG’s failure can be tied directly to the failure of
Key Takeaway 1: the board of directors and senior management. The
Silicon Valley Bank’s board of board and management failed to effectively over-
directors and management failed see the risks inherent in SVBFG’s business model
to manage their risks. and balance sheet strategies. SVBFG did not take
sufficient steps in a timely fashion to build a gov-
ernance and risk-management framework that kept up with its rapid growth and business model
risks. An SVBFG director, for example, told supervisors in 2022 that controls always lag growth.
See the “Evolution of Silicon Valley Bank” section for more information.

Growth of SVBFG

SVBFG was a large bank holding company with approximately $212 billion in total assets when
it failed in March 2023. SVBFG provided financial services predominantly to companies in the
technology and life sciences sectors. Between 2019 and 2021, SVBFG tripled in size as it bene-
fited from rapid deposit inflows during rapid venture capital (VC) and technology sector growth in
a period of exceptionally low interest rates. These deposits were largely uninsured, and SVBFG
invested them primarily in securities with longer-term maturities. In 2022, as interest rates began
to rise, SVBFG saw deposit outflows and a rapid increase in unrealized losses on those securities.
Executive Summary 3

SVBFG’s rapid failure can be linked directly to its governance, liquidity, and interest rate
risk-management deficiencies. The full board of directors did not receive adequate information
from management about risks at SVBFG and did not hold management accountable. For example,
information updates that management sent the board did not appropriately highlight SVBFG’s
liquidity issues until November 2022 despite deteriorating conditions. Moreover, the board put
short-run profits above effective risk management and often treated resolution of supervisory
issues as a compliance exercise rather than a critical risk-management issue. Compensation
packages of senior management through 2022 were tied to short-term earnings and equity returns
and did not include risk metrics. As such, managers had a financial incentive to focus on short-
term profit over sound risk management.

SVBFG showed foundational weaknesses in its liquidity risk management, including both its
liquidity position and its ability to manage risk through its internal liquidity stress tests (ILST),
limits, and contingency funding plans (CFP). For example, beginning in July 2022 when SVBFG first
became subject to enhanced prudential standards (EPS) under Regulation YY as a consequence
of exceeding the $100 billion threshold, SVBFG repeatedly failed its own ILST.4 Management
responded by increasing funding capacity, but the funding capacity actions were not rapidly under-
taken or fully executed by March 2023. Management also switched to using less conservative
stress testing assumptions, which masked some of these risks. This was particularly problematic
due to a highly concentrated deposit base that management assumed was more stable than it
proved to be.

SVBFG failed to assess and manage the interest rate risk (IRR) in its rapidly growing securities
portfolio. These risk-management challenges proved critical when the external environment for
SVBFG changed as interest rates rose sharply and activity in the technology sector slowed in 2022
and 2023. Rising rates impacted SVBFG in two ways: both net interest income and the value of
long-dated securities declined, resulting in pressure on earnings and potential losses.

SVBFG management was focused on the short-run impact on profits. SVBFG’s internal risk appe-
tite metrics, which were set by its board, provided limited visibility into its vulnerabilities. In fact,
SVBFG had breached its long-term IRR limits on and off since 2017 because of the structural
mismatch between long-duration securities and short-duration deposits. In April 2022, SVBFG
made counterintuitive modeling assumptions about the duration of deposits to address the limit
breach rather than managing the actual risk. Over the same period, SVBFG also removed interest
rate hedges that would have protected against rising interest rates. In sum, when rising interest
rates threatened profits and reduced the value of its securities, SVBFG management took steps to
maintain short-term profits rather than effectively manage the underlying balance sheet risks.

4
As described in greater detail in this report, Regulation YY implements certain of the enhanced prudential standards
(EPS) mandated by the Dodd-Frank Act for large bank holding companies. See 12 C.F.R. pt. 252.
4 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Failure of SVB

As the risks to the firm’s balance sheet mounted, SVBFG took steps to address the issues and
announced a plan on March 8, 2023, to restructure its balance sheet. SVBFG had sold $21 billion
in available-for-sale (AFS) securities, was booking a $1.8 billion after-tax loss, was planning to
increase term borrowings by $15 billion to $30 billion, and was seeking to raise $2.25 billion in
capital.5 The next day, SVB experienced a bank run as withdrawals of uninsured deposits rapidly
accelerated. These deposit outflows reflected fundamental concerns about the bank and appear
to have been sparked by a number of interrelated factors: heightened uncertainty and changing
sentiment around the technology sector; potential negative action from credit rating agencies; and
highly correlated withdrawals from SVBFG’s concentrated network of VC investors and technology
firms who, fueled by social media, withdrew uninsured deposits in a coordinated manner at an
unprecedented rate.

On March 9, SVB lost over $40 billion in deposits, and SVBFG management expected to lose over
$100 billion more on March 10. This deposit outflow was remarkable in terms of scale and scope
and represented roughly 85 percent of the bank’s deposit base. By comparison, estimates sug-
gest that the failure of Wachovia in 2008 included about $10 billion in outflows over 8 days, while
the failure of Washington Mutual in 2008 included $19 billion over 16 days.6 In response to these
actual and expected deposit outflows, SVB failed on March 10, 2023, which in turn led to the later
bankruptcy of SVBFG.

During the final days before its failure, SVB’s operational weaknesses became apparent as it
struggled to execute on its CFP. For example, SVB did not test its capacity to borrow at the dis-
count window in 2022 and did not have appropriate collateral and operational arrangements
in place to obtain liquidity. While stronger operational capacity to obtain contingency funding in
March 2023 would likely not have prevented SVB’s failure, it could have facilitated a more orderly
resolution.

SVB’s failure had two stages. First, its core risk-management capacity failed to keep up with
rapid asset growth, which led to steady deterioration of its financial condition in 2022 and into
March 2023. This reflected a long build-up of weakness, as SVBFG could not effectively manage
through a changing economic and financial environment in 2022 and 2023. Second, SVBFG failed

5
SVBFG, “Message to Shareholders Regarding Recent Strategic Actions Taken by SVB,” 1, March 8, 2023, https://s201.
q4cdn.com/589201576/files/doc_downloads/2023/03/r/Q1-2023-Investor-Letter.FINAL-030823.pdf; SVBFG, “SVB
Financial Group Announces Proposed Offerings of Common Stock and Mandatory Convertible Preferred Stock,” March 8,
2023, https://ir.svb.com/news-and-research/news/news-details/2023/SVB-Financial-Group-Announces-Proposed-
Offerings-of-Common-Stock-and-Mandatory-Convertible-Preferred-Stock/default.aspx.
6
Jonathan D. Rose, “Old-Fashioned Deposit Runs,” Finance and Economics Discussion Series 2015-111, table 1
(Washington: Board of Governors of the Federal Reserve System, November 2015), https://www.federalreserve.gov/
econresdata/feds/2015/files/2015111pap.pdf.
Executive Summary 5

to develop sufficient contingent funding capacity. This contributed to a disorderly failure when
SVBFG tried to manage the acute situation after its March 8, 2023, balance sheet restructuring
announcement.

Federal Reserve Oversight
Federal Reserve oversight of supervised firms involves the Federal Reserve Board and the
12 Reserve Banks. The Board establishes the regulations to which banks are subject and designs
the programs used to supervise firms. In general, the Reserve Banks are responsible for the
assessment of firms, such as SVBFG, in each District as part of delegated authority from the
Board. In this arrangement, the Board staff provide input and support in supervision and also
provide oversight of the Reserve Banks. In the case of SVBFG, the Federal Reserve Bank of San
Francisco (FRBSF) was the responsible Reserve Bank. By policy design, supervisory and regulatory
standards generally increase with a firm’s size and complexity.7

The Federal Reserve organizes its supervisory approach based on asset size, with the exception
of the global systemically important banks (G-SIBs) that are supervised within the Large Institution
Supervision Coordinating Committee (LISCC) portfolio.8 Banks with assets of $100 billion or more
that are not G-SIBs are supervised within the Large and Foreign Banking Organization, or LFBO,
portfolio. Banks with assets in the $10 billion to $100 billion range are supervised within the
Regional Banking Organization, or RBO, portfolio. Banks with assets of less than $10 billion are
supervised within the Community Banking Organization, or CBO, portfolio. While SVBFG was in the
RBO portfolio, examination staffing generally came from pools of RBO and CBO examiners, who
may have had less experience with the governance and risk-management practices required for a
more sizable and complex institution like SVBFG.

Federal Reserve oversight of SVBFG proved inadequate for the well-documented and significant
vulnerabilities and managerial weaknesses at SVBFG. The record shows that supervisors identi-
fied some of the material issues, but also underappreciated important ones, particularly during
the period of SVBFG’s rapid growth while in the RBO portfolio. SVB’s foundational problems were
widespread and well-known, yet core issues were not resolved, and stronger oversight was not put
in place. As is often the case with complex problems, this outcome reflects a combination of many
interconnected factors and not a single point of failure.

7
See Board of Governors of the Federal Reserve System, “Federal Reserve Board Finalizes Rules that Tailor Its Regu-
lations for Domestic and Foreign Banks to More Closely Match Their Risk Profiles,” October 10, 2019, https://www.
federalreserve.gov/newsevents/pressreleases/bcreg20191010a.htm.
8
Board of Governors of the Federal Reserve System, Supervision and Regulation Report (Washington: Board
of Governors, November 2022), https://www.federalreserve.gov/publications/files/202211-supervision-and-
regulation-report.pdf.
6 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Supervisory Assessment

SVBFG had 31 open supervisory findings when
Key Takeaway 2: it failed in March 2023, about triple the number
Supervisors did not fully appreciate observed at peer firms.9 The supervisory findings
the extent of the vulnerabilities as at SVBFG included core areas, such as governance
Silicon Valley Bank grew in size and and risk management, liquidity, interest rate risk
complexity. management, and technology.

Supervisors last assessed SVBFG according to the Large Financial Institution (LFI) rating system in
August 2022.10 The ratings, while highlighting key weaknesses, did not fully reflect the vulnerabili-
ties of SVBFG. Under this framework, supervisors assessed SVBFG on the following:

• Governance and controls: “Deficient-1,” a rating that is less than satisfactory. Supervisors
had told SVBFG that “governance and risk-management practices are below supervisory
expectations” and that its “risk-management program is not effective” when three supervisory
findings were issued in May 2022.11

• Liquidity: “Conditionally Meets Expectations (CME),” a satisfactory rating. Supervisors
had informed SVBFG that its “liquidity risk management practices are below supervisory
expectations” and identified foundational shortcomings in key areas as part of the issuance of
six supervisory findings in November 2021.12

• Capital: “Broadly Meets Expectations (BME),” a satisfactory rating that is the highest rating
in the LFI rating system. Supervisors later informed SVBFG that “interest rate risk (IRR)
simulations are not reliable and require improvements…calling into question the reliability
of IRR modeling and the effectiveness of risk-management practices” when one supervisory
finding was issued in November 2022.13

A review of the supervisory record shows that supervisory judgments were not always appropri-
ate given the observed weaknesses of SVBFG (see the “Federal Reserve Supervision” section
and the “Supervision of SVBFG by Critical Risk Areas” section). In particular, SVBFG was rated
as “Satisfactory-2” in all categories when it shifted from the RBO portfolio to the LFBO port-
folio in 2021. Liquidity at SVB was rated “Strong-1” in May 2021 and then “Satisfactory-2” in
August 2022.

9
Supervisory findings include matters requiring attention (MRAs) and matters requiring immediate attention (MRIAs). As
described in greater detail in this report, MRAs and MRIAs are one of the primary tools to formally convey supervisory
findings. The 31 supervisory findings refer to safety-and-soundness findings. SVBFG also had four open consumer com-
pliance findings.
10
SVBFG and SVB 2021 Supervisory Ratings letter, August 17, 2022. See table 4 of this report. See also Board of Gov-
ernors of the Federal Reserve System, “Large Financial Institution (LFI) Rating System,” SR letter 19-3/CA letter 19-2
(February 26, 2019), https://www.federalreserve.gov/supervisionreg/srletters/sr1903.pdf.
11
SVBFG and SVB Governance and Risk Management Target Supervisory letter, May 31, 2022.
12
SVBFG Liquidity Planning Target Supervisory letter, November 2, 2021.
13
SVB 2022 CAMELS Examination Supervisory letter, November 15, 2022.
Executive Summary 7

For governance, SVBFG was rated “Satisfactory-2” in terms of management for both the holding
company and the bank from 2017 through 2021 despite repeated observations of weakness in
risk management. For example, the 2020 review confirmed that management and board oversight
remained satisfactory, but also concluded that improvements were necessary: “An independent and
effective LOD [line of defense] framework is fundamental to the Board and management’s ability to
plan for and respond to risks arising from changing business conditions, new activities, accelerated
growth, and increasing complexity.”14 The evidence shows no discussion of downgrading the man-
agement rating. When SVBFG moved to the LFBO portfolio, supervisors recognized that SVBFG’s
risk management was not robust and proceeded to build evidence, issue MRIAs, and downgrade
SVBFG. Governance and Controls were ultimately rated “Deficient-1,” but not until August 2022.

In terms of liquidity, SVBFG was rated “Strong-1” and subject to limited-scope liquidity reviews as
part of the guidelines for smaller firms, despite its significant asset growth and idiosyncratic busi-
ness model. A more thorough evaluation prior to joining the LFBO portfolio would have been bene-
ficial, given the lag since the last in-depth examination and the heightened standards for a firm in
the LFBO portfolio. Moreover, the standard liquidity risk metrics in the RBO portfolio were likely not
appropriate for a bank like SVB. For example, a commonly used metric was the ratio of core depos-
its, which excludes large time deposits and brokered deposits, to total assets. By this metric, SVB
appeared to have a comparatively stable source of funding despite the fact that SVB’s deposits
were concentrated in large, uninsured accounts that proved to be quite volatile.

For IRR, SVBFG was rated as “Satisfactory-2” despite the firm repeatedly breaching its internal
risk limits for long-term risk exposure over several years. IRR was not viewed as a material risk at
SVBFG until late 2022 and therefore not subject to a thorough examination.

Portfolio Transition and Heightened Standards
In the case of SVBFG, despite widespread evidence
of foundational governance and risk-management Key Takeaway 3:

issues, supervisors were slow to downgrade super- When supervisors did identify vul-

visory ratings or to ensure that SVBFG’s board and nerabilities, they did not take suf-

senior management took sufficient and immediate ficient steps to ensure that Silicon

steps to compensate for those widespread weak- Valley Bank fixed those problems

nesses (see the “Federal Reserve Supervision” quickly enough.

section and the “Supervision of SVBFG by Critical
Risk Areas” section).

During the second half of 2022 and into 2023, as SVBFG’s liquidity steadily weakened, unreal-
ized losses accumulated on its securities portfolios, and its performance outlook deteriorated,
supervisors continued to accumulate evidence of widespread weaknesses and delayed escalating
14
SVB 2020 CAMELS Examination Report, May 3, 2021.
8 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

supervisory action. For example, it took more than seven months to develop an informal enforce-
ment action, known as a memorandum of understanding (MOU), for SVBFG and SVB to address
the underlying risks related to “oversight by their respective boards of directors and senior man-
agement and the Firm’s risk-management program, information technology program, liquidity risk-
management program, third-party risk-management program, and internal audit program.”15 SVBFG
failed before the MOU was delivered.

The supervision of SVBFG was complicated by the transition of SVBFG, due to its rapid growth
in assets, from the RBO portfolio to the LFBO portfolio within the Federal Reserve supervisory
structure in February 2021. As a result of its rapid growth, SVBFG shifted to the LFBO portfolio in
2021 and was subject to a higher set of supervisory and regulatory standards. FRBSF established
a new team to supervise SVBFG as an LFBO firm in March 2021, which included an expansion to
20 individuals, up from about 8 individuals while SVBFG was in the RBO portfolio.

By policy design, banks in the LFBO portfolio are subject to more stringent supervisory expec-
tations and higher regulatory requirements. As SVBFG continued to grow and entered the LFBO
portfolio, the regulations provided for a long transition period, or runway, for SVBFG to meet those
higher standards, and supervisors did not want to appear to pull forward large bank standards by
applying them to smaller banks in light of policymaker directives. This transition meant that the
new supervisory team needed considerable time to make their initial assessments. In addition,
Board staff provided the FRBSF team a waiver to delay the initial set of ratings under the LFI rating
system by six months until August 2022.16

Once SVBFG moved to the LFBO portfolio, liquidity ratings remained satisfactory despite funda-
mental weaknesses in risk management and mounting evidence of a deteriorating position. The
combination of ILST shortfalls, persistent and increasingly significant deposit outflows, and mate-
rial balance sheet restructuring plans likely warranted a stronger supervisory message in 2022.
The record suggests a desire to wait for further evidence after the planned horizontal liquidity
review (HLR) in 2023, which ultimately found additional issues related to SVBFG’s ILST assess-
ment and capacity to monetize liquidity buffers. SVBFG’s liquidity shortfalls from its ILST were not
accurately reflected in an assessment of SVBFG’s true liquidity risk. Rather, the shortfall was char-
acterized as an “operational” one by both SVBFG and supervisors. This ILST shortfall was in fact a
violation by the firm of the corresponding liquidity regulation, Regulation YY, which should have led
to an MRIA that required SVBFG to take immediate action to remedy the breach.

The rating assigned in the RBO portfolio set the default view of SVBFG as a solid firm for the new
supervisory team when SVBFG entered the LFBO portfolio and made downgrades more difficult

15
Memorandum of Understanding (Draft), March 10, 2023.
16
The LFI rating system applies to holding companies; see SR letter 19-3.
Executive Summary 9

in practice. For example, as part of the initial liquidity target exam in November 2021 that led
to six supervisory findings, staff concluded that the proposed findings were all foundational
issues, rather than ones specifically related to EPS readiness. Despite the observed weaknesses,
because SVBFG had just recently been rated as satisfactory in July 2021, staff questioned
whether it would be reasonable to come out with a new rating so quickly.

With regard to interest rate risk-management, supervisors identified interest rate risk deficien-
cies in the 2020, 2021, and 2022 CAMELS exams but did not issue supervisory findings (MRA/
MRIA). The deficiencies were only communicated as written advisories or verbal observations. As
a second example, in the first half of 2022, SVBFG believed that it would see higher net interest
income (NII) from rising interest rates. In October 2022, however, SVBFG management informed
supervisors that NII was now projected to decline in the fourth quarter of 2022. The supervisory
team issued an MRA in November 2022 and planned to downgrade the Sensitivity to Market Risk
rating in the CAMELS framework from “Satisfactory-2” to “Less-than-Satisfactory-3” as part of the
2022 CAMELS exam.17 The firm failed before that downgrade was finalized.

While supervisors did issue supervisory findings, the delay in a rating downgrade meant that
SVBFG effectively continued to operate below supervisory expectations for more than a year
despite its growing size and complexity. Federal Reserve supervisors ultimately downgraded
SVB’s CAMELS ratings for Management, Liquidity, and on a Composite basis in August 2022 and
SVBFG’s Governance and Controls were determined to be less than satisfactory.18 Despite wide-
spread weaknesses, this 2022 action was the first downgrade of SVBFG or SVB in the period
since 2017.

Overall, the supervisory approach at SVBFG was too deliberative and focused on the continued
accumulation of supporting evidence in a consensus-driven environment. Further, the rating
assigned as a smaller firm set the default view of SVBFG as a well-managed firm when a new
supervisory team was assigned in 2021 after SVBFG’s rapid growth. This made downgrades more
difficult in practice.

The root cause of these delays around supervisory actions is difficult to ascertain. Governance
issues related to the Board’s approach to delegated authority may play a role. For example, the
Board has delegated to the Reserve Banks supervisory authority for firms like SVBFG, including
the authority to issue supervisory ratings, but in practice, Reserve Bank supervisors typically seek
approval from or consensus with Board staff before making a rating change. Enforcement actions
for banks with assets greater than $100 billion are not delegated to Reserve Banks but require

17
SVB 2022 CAMELS Examination Supervisory letter, November 15, 2022.
18
SVBFG and SVB 2021 Supervisory Ratings letter, August 17, 2022.
10 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

approval by Board staff. The lack of clarity around governance processes and the need for consen-
sus often led to a lengthy process.

A related complication is that the Board provides substantive input to the supervisory process,
including the ratings for firms subject to delegated authority, and also acts in an oversight capacity
over the Reserve Banks. This creates conflicting incentives for the Reserve Banks that could be
an additional force that pushes toward consensus around supervisory judgments.

Policy Stance

Over the same period that SVBFG was grow-
Key Takeaway 4: ing rapidly in size and complexity, the Federal
The Board’s tailoring approach in Reserve shifted its regulatory and supervisory
response to EGRRCPA and a shift policies because of a combination of external
in the stance of supervisory policy statutory changes and internal policy choices (see
impeded effective supervision by the “Federal Reserve Supervision” section, the
reducing standards, increasing “Supervision of SVBFG by Critical Risk Areas” sec-
complexity, and promoting a less tion, and the “Federal Reserve Regulation” section).
assertive supervisory approach. The Board’s Vice Chair for Supervision, a position
that is appointed by the President and confirmed by
the Senate for a four-year term, is responsible for developing supervisory and regulatory policies
for the Board to consider.

In 2018, EGRRCPA amended the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) by raising the $50 billion minimum asset threshold for general application of
EPS to bank holding companies with $250 billion in total assets.19 At the same time it raised the
threshold for general application of EPS, EGRRCPA provided the Board with discretion to rebut
the statutory presumption and apply EPS to bank holding companies with total assets between
$100 billion and $250 billion.

In October 2019, the Board established categories for determining application of the EPS to large
U.S. banking organizations and foreign banking organizations through the 2019 tailoring rule,
as well as EPS related to capital and liquidity requirements.20 This tailoring was consistent with
EGRRCPA and reflected policy choices about how Federal Reserve oversight should be designed
and implemented. Specifically, the threshold for EPS was raised from $50 billion in assets to
$100 billion in assets, and SVBFG was subject to a less stringent set of EPS when it reached

19
Economic Growth, Regulatory Relief, and Consumer Protection Act, Pub. L. No. 115-174, 132 Stat. 1296, 1356,
§ 401(a) (2018) (codified at 12 U.S.C. § 5365).
20
Prudential Standards for Large Bank Holding Companies, Savings and Loan Holding Companies, and Foreign Banking
Organizations, 84 Fed. Reg. 59,032 (November 1, 2019), https://www.federalregister.gov/documents/2019/11/01/
2019-23662/prudential-standards-for-large-bank-holding-companies-savings-and-loan-holding-companies-and-foreign.
Executive Summary 11

the $100 billion threshold than would have applied before 2019 (see the “Federal Reserve
Regulation” section). Critically for supervision, the Board raised the threshold for heightened
supervision by the LFBO portfolio from $50 billion in assets to $100 billion in assets in July 2018
to track the new EGRRCPA thresholds, which delayed application of heightened supervisory expec-
tations to the firm by at least three years.

In 2018, the Board confirmed its policy stance on supervisory guidance, issuing “guidance on
guidance,” which publicly clarified the role of supervisory expectations as compared to laws or
regulations.21 In April 2021, the Board adopted a final rule to codify the long-standing principle that
supervisory guidance does not have the force and effect of law, but rather outlines expectations
and appropriate practices for a particular subject area or activity.22

Over the same period, under the direction of the Vice Chair for Supervision, supervisory practices
shifted. In the interviews for this report, staff repeatedly mentioned changes in expectations and
practices, including pressure to reduce burden on firms, meet a higher burden of proof for a super-
visory conclusion, and demonstrate due process when considering supervisory actions. There was
no formal or specific policy that required this, but staff felt a shift in culture and expectations from
internal discussions and observed behavior that changed how supervision was executed. As a
result, staff approached supervisory messages, particularly supervisory findings and enforcement
actions, with a need to accumulate more evidence than in the past, which contributed to delays
and in some cases led staff not to take action.

It is difficult to judge how these collective changes in policy affected the oversight of SVBFG, but
a review of the historical record and staff interviews suggest that they played a role. Although
the stated intention of these policy changes was to improve the effectiveness of supervision, the
changes also led to slower action by supervisory staff and a reluctance to escalate issues. For
example, staff informed SVBFG about a forthcoming MOU around information technology in 2021,
but staff subsequently dropped the matter because they felt it would not be pursued by policy
makers at that time.

Over the same period, the intensity of supervisory coverage of SVBFG declined while SVBFG was
in the RBO portfolio. For example, scheduled supervision hours for SVBFG fell over 40 percent
from 2017 to 2020 (impacted, in part, by the pandemic), even as SVBFG grew rapidly. Supervi-
sory attention increased dramatically in 2022 when SVBFG entered the LFBO portfolio. Budgetary
resources may have mattered also. During this period, the overall number of supervisory resources

21
Board of Governors of the Federal Reserve System, “Interagency Statement Clarifying the Role of Supervisory Guid-
ance,” SR letter 18-5/CA letter 18-7 (September 11, 2018). Because the SR letter was codified in the 2021 final rule
on guidance, the SR letter was made inactive.
22
Role of Supervisory Guidance, 86 Fed. Reg. 18,173 (April 8, 2021), https://www.federalregister.gov/documents/
2021/04/08/2021-07146/role-of-supervisory-guidance.
12 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

remained flat. From 2016 to 2022, for example, banking sector assets grew 37 percent (nominal
terms), while Federal Reserve System supervision headcount declined by 3 percent.

A final factor was the impact of the COVID-19 pandemic that began in March 2020. At that
time, SVBFG was in the RBO portfolio. The Board issued supervisory guidance for supervisors
to continue to assess institutions in accordance with existing policies and to consider whether
firms have managed risks appropriately, including taking action in response to the stress from
COVID-19.23

One practical impact was a pause in some examinations for the RBO portfolio that may have made
SVBFG’s transition from the RBO to the LFBO portfolio more abrupt. Moreover, supervisors needed
additional time to reassess supervisory views. When LFBO work on SVBFG began in the middle of
2021, the new team began with a safety-and-soundness assessment that was issued by super-
visors in May 2021 based on exam work done in the fall of 2020. Over that period, SVBFG had
continued its rapid growth.

Regulation

SVBFG’s rapid growth led it to move across categories of the Federal Reserve’s regulatory frame-
work (see the “Federal Reserve Regulation” section). Under the current framework, the application
of rules to a particular firm depends on a range of factors related to a firm’s size and complexity.
As seen in the visual produced by the Federal Reserve Board,24 the framework is quite compli-
cated. SVBFG and staff supervising SVBFG spent considerable effort seeking to understand the
rules and when they apply, including the implications of different evaluation criteria, historical and
prospective transition periods, cliff effects, and complicated definitions. SVBFG regularly engaged
consultants to help prepare for the transition.

In June 2021, SVBFG crossed the $100 billion threshold in average total consolidated assets and
therefore met the criteria for a Category IV firm under the 2019 tailoring rule. SVBFG became sub-
ject to capital, liquidity, and risk-management requirements applicable to Category IV firms. SVBFG
also faced specific supervisory guidance regarding corporate governance, board effectiveness,
and management of interest rate risk. However, at the time of its failure, an important subset of
Category IV capital and liquidity requirements, including supervisory stress testing, the stress cap-
ital buffer, the liquidity coverage ratio (LCR), and the net stable funding ratio (NSFR), were not yet
applied to SVBFG because of applicable transition periods in the rules. For example, SVBFG’s first

23
Board of Governors of the Federal Reserve System, “Interagency Examiner Guidance for Assessing Safety and Sound-
ness Considering the Effect of the COVID-19 Pandemic on Institutions,” SR letter 20-15 (June 23, 2020), https://www.
federalreserve.gov/supervisionreg/srletters/sr2015.htm.
24
Board of Governors of the Federal Reserve System, “Requirements for Domestic and Foreign Banking Organizations,”
Tailoring Rule Visual (October 10, 2019), https://www.federalreserve.gov/aboutthefed/boardmeetings/files/tailoring-
rule-visual-20191010.pdf.
Executive Summary 13

supervisory stress test would have occurred in 2024, more than two years after SVBFG became a
Category IV firm.

In the absence of these changes, SVBFG would have been subject to enhanced liquidity risk man-
agement requirements, full standardized liquidity requirements (i.e., LCR and NSFR), enhanced
capital requirements, company-run stress testing, supervisory stress testing at an earlier date,
and tailored resolution planning requirements. An analysis of SVBFG’s December 2022 capital
and liquidity levels against the pre-2019 requirements suggests that SVBFG would have had to
hold more high-quality liquid assets (HQLA) under the prior set of requirements.25 For example,
under the pre-2019 regime, SVBFG would have been subject to the full LCR and would have had
an approximately 9 percent shortfall of HQLA in December 2022, and estimates for February 2023
show an even larger shortfall (approximately 17 percent), which would have required different
actions from SVBFG. In terms of capital, under the pre-2019 regime, SVBFG would have been
required to recognize unrealized gains and losses on its AFS securities portfolio in its regulatory
capital; by including the unrealized losses on its AFS securities portfolio, in December 2022
SVBFG’s reported regulatory capital would have been $1.9 billion lower.

Increased capital and liquidity would have bolstered the resilience of SVBFG. The requirements
may also have encouraged closer scrutiny of the firm’s financial position. Had SVBFG been subject
to the capital and liquidity requirements that existed before EGRRCPA and related rulemakings,
SVBFG may have more proactively managed its liquidity and capital positions or maintained a
different balance sheet composition.

A comprehensive assessment of changes from EGRRCPA, the 2019 tailoring rule, and related
rulemakings show that they combined to create a weaker regulatory framework for a firm like
SVBFG. Further, the long transition periods provided by the rules that did apply further delayed the
implementation of requirements, such as stress testing, that may have contributed to the resil-
iency of the firm.

Other Findings
Surveillance and Analytics

Staff at the Board and the Reserve Banks produce a wide range of analytical work that exam-
ines the condition of the U.S. banking system with a specific focus on emerging risks that is
designed to provide context for policymakers and staff (see the “Additional Topics” section). A
review of both internal and external material shows that staff identified a wide range of emerging

25
It should be noted that had these heightened requirements come into effect based on the pre-EGRRCPA criteria (e.g.,
at least $250 billion in total consolidated assets or at least $10 billion of total consolidated on-balance sheet foreign
exposure), SVBFG may have proactively managed its asset size and on-balance sheet foreign exposure to avoid becom-
ing subject to these additional requirements.
14 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

issues, including the impact of rising interest rates on securities valuation and potential deposit
impacts, both of which proved relevant for SVB. The Board received a briefing on these topics in
mid-February 2023 in which SVBFG was specifically identified as an example of a large firm with
“significant safety and soundness risks.”26 Analytical reports also highlighted that bank deposits
that increased rapidly during the pandemic presented a rising risk, particularly in the FRBSF Dis-
trict where outflows were relatively large in the fourth quarter of 2022.

Overall, the analytical and surveillance work seemed largely fit for purpose in terms of traditional
assessments of the condition of the banking industry and emerging risks for individual banks.
While the surveillance work covered traditional topics, it did not expressly consider certain emerg-
ing forces such as changing depositor dynamics or the implications for contingency funding. In
addition, it is not clear how this surveillance work impacted the specific supervisory approach
for SVBFG.

Finally, this report focused on the perspective of risks to individual firms and did not review finan-
cial stability work related to the systemic factors that proved critical after the failure of SVBFG.

Other Topics

The report examines the Federal Reserve’s assessment of several additional topics: the firm’s
incentive compensation program, applications to expand its operations, SVB’s loan agreements
that required borrowers to place deposits at SVB, and application of the Volcker rule to SVB (see
the subsections under the “Additional Topics” section).

As discussed later in the report, SVBFG’s incentive compensation practices may have encouraged
excessive risk-taking. The other topics appear less salient to the failure of SVB.

Behavior

The report found no evidence of unethical behavior on the part of supervisors. The previous con-
clusions relate to substantive supervisory judgments in the development and implementation of
the Federal Reserve’s oversight program only.

Issues for Consideration
The final portion of this report considers lessons learned from the failure of SVBFG that could
enhance the Federal Reserve’s supervision and regulation (see the “Observations for Federal
Reserve Oversight” section). Lessons learned are an important component of this type of review,
but it is useful to describe the caveats and challenges.

26
Board of Governors of the Federal Reserve System, “Impact of Rising Rates on Certain Banks and Supervisory
Approach,” S&R Quarterly Presentation, February 14, 2023.
Executive Summary 15

One challenge is to be as clear as possible about the underlying problems to be solved. For exam-
ple, in the case of SVBFG’s failure, one must determine how much weight to put on the decisions
of SVBFG’s board and management, the design of the Federal Reserve’s supervision and regula-
tion, the execution of that supervision and regulation, and the specific combination of environmen-
tal factors that materialized in 2022 and early 2023. This type of causal decomposition is quite
difficult from a single event.

Second, decisions about the stance of policy and desired level of resilience appropriately reflect
policymakers’ views on many complex and interrelated topics: risk appetite; the costs of regula-
tory burden; the competitive landscape; how financial services are most efficiently provided to an
economy; the importance of transparency, accountability, and fairness; the effectiveness of market
discipline; and the source and impact of systemic spillovers. Different policymaker choices and
trade-offs will have different implications for the resilience of the financial system, the desired
stance of prudential oversight, and financial outcomes.

Finally, while SVBFG failed because of a particular constellation of factors, that is only one reali-
zation of many potential outcomes across supervised firms and over time. Constructive change
to the Federal Reserve’s supervision and regulation needs to be robust and reflect not only the
factors that proved pivotal for SVBFG but also a broader range of potential scenarios that may
have not yet materialized and could be equally consequential. This is particularly true in an
environment like this one with rapid financial and technological innovation, competition from new
financial entrants, macroeconomic uncertainty, more rapid financial flows, and faster communica-
tion through social media, all of which bring an uncertain combination of risks and opportunities
for the banking system.

A successful review of the Federal Reserve’s regulatory and supervisory program will depend
critically on difficult judgments about these issues. To begin that discussion, the final section of
this report identifies four broad thematic areas of potential changes: enhance risk identification;
promote resilience; change supervisor behavior; and strengthen processes.

Supervisors expect banks to manage all material risks, so these issues are not limited to the spe-
cific factors that drove the failure of SVBFG. Rather, the themes are meant to identify broad and
foundational issues that could better promote safety and soundness generally. Looking beyond
current events, many of these issues are not new and echo similar issues raised in earlier reviews
of Federal Reserve supervision. This suggests both the importance of this type of review and the
challenges ahead.
16 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Figure 1. Timeline of key developments

Financial and market developments 2022
Due to rising 2022:2H Early 2023
interest rates, Amid rising interest Deposit
Jan. 2021 SVBFG has rates, VC activity outflows
Jan. 2021 Surge in venture Nov. 2021 Dec. 2021 rapid increases falls sharply, continue as Mar. 8, 2023
SVBFG shifts capital (VC) deal SVBFG stock SVBFG in unrealized funding for VC-backed SVBFG Mar. 10,
portfolio to activity and client (ticker symbol: quarter-end losses on its VC-backed clients clients use announces 2023
held-to-maturity funds (deposits) SIVB) price assets exceed securities slows, deposit cash to fund balance sheet SVB
(HTM) securities through 2022:Q2 peaks $200B portfolio outflows operations restructuring closed

2023
Jan. 2019—Mar. 2020 Apr. 2020—Dec. 2021 Jan. 2022—Mar. 2023 Post-
Slow deposit growth (19.8% CAGR) Accelerated deposit growth (89.3% CAGR) Mild deposit runoff (−8.5% CAGR) resolution

Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July
2019 2020 2021 2022 2023
SVBFG events Market events Financial disclosure events Other

Supervisory developments
Aug. 2022
Mar. 2019 Apr. 2020 May 2021 2021 Annual Assessment
2018 Annual 2019 Annual 2020 Annual Assessment Nov. 2021 May 2022 Letter (LFI) Capital BME, Nov. 2022
Assessment Assessment Letter Ratings: Satisfactory Supervisors report Three Liquidity CME, G&C D-1; MRA issued for
Letter Ratings: Letter Ratings: except IT (less than foundational liquidity governance CAMELS ratings: interest rate risk
Satisfactory Satisfactory Satisfactory) weaknesses MRIAs issued Less than Satisfactory modeling practices

Aug. 2022— 2023
Jan. 2019—July 2022 Mar. 2023 Post-
CAMELS rating: well managed LFI rating: resolution
not well managed

Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July
2019 2020 2021 2022 2023
Annual assessment letters MRAs/MRIAs

Regulatory developments
Jan. 2022 July 2022 Oct. 2022 Dec. 2022
SVBFG begins SVBFG became 2052a liquidity SVBFG crossed
Oct. 2019 compliance with subject to monitoring reporting $50B STWF Jan. 2023
Federal June 2021 capital planning internal liquidity requirements threshold SVBFG enters
Reserve SVBFG crossed requirement; stress testing updated to include (first subject to 2-year supervisory
finalizes $100B average first 2052a and tailored certain NSFR-related 70% LCR and stress test cycle
tailoring total consolidated liquidity monitoring risk-management elements and 70% NSFR (first test
rule assets threshold report submitted requirements other enhancements Oct. 2023) Jan. 2024)

2023
Jan. 2019—Feb. 2021 Feb. 2021—Mar. 2023
Post-
SVBFG is an RBO portfolio firm SVBFG is an LFBO portfolio firm
resolution

Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July
2019 2020 2021 2022 2023
Regulatory threshold Other

Note: CAGR = compound annual growth rate. Mild deposit runoff (−8.5 percent CAGR) period calculated as
January 2022 through December 2022.
17

Evolution of Silicon Valley Bank
Overview
Silicon Valley Bank Financial Group (SVBFG) was founded in 1983 and was headquartered in
Santa Clara, California. Prior to its failure, SVBFG was a financial services company, financial hold-
ing company, and bank holding company with approximately $212 billion in total assets.27 SVBFG’s
principal subsidiary was Silicon Valley Bank (SVB), a California state-chartered bank with approx-
imately $209 billion in assets (figure 2) that was a member of, and supervised by, the Federal
Reserve System (i.e., state member bank).28 While SVBFG had both U.S. and non-U.S. subsidiar-
ies, SVBFG primarily operated in the U.S. and offered commercial and private banking products
and services through SVB. SVBFG derived substantially all of its revenue from U.S. clients, and
approximately 80 percent of its employees were based in the United States.29

Figure 2. SVBFG selected legal entity structure

SVB Financial Group*
Domestic financial holding company
$211.8 billion

Silicon Valley Bank* SVB Securities Holdings LLC
State member bank SVB Capital Funds Entities Other domestic entity SVB Global Financial, Inc.
$209.0 billion Multiple domestic entities $0.6 billion Other domestic entity

Silicon Valley Bank UK Limited*
International subsidiary SVB Securities LLC SVB Global
$14.9 billion Securities broker-dealer Services India LLP*
$0.5 billion International
nonbank subsidiary

SVB Wealth LLC*
Other domestic entity

Note: Data as of December 31, 2022. Structure simplified for illustrative purposes.
* Indicates the five legal entities SVB identified as material in its 2022 resolution plan.
Source: Federal Financial Institutions Examination Council (FFIEC) National Information Center.

27
Total assets as of December 31, 2022. See SVBFG, 2022 10-K, 63, February 24, 2023, https://ir.svb.com/financials/
sec-filings/sec-filings-details/default.aspx?FilingId=16435322.
28
See Federal Financial Institutions Examination Council, National Information Center, https://www.ffiec.gov/npw/
Institution/Profile/802866?dt=20151231.
29
According to SVBFG’s 2022 10-K, SVBFG derived less than 10 percent of its total revenues from foreign clients for each
of 2022, 2021, and 2020, and approximately 20 percent of SVBFG’s employees were in international locations, includ-
ing the United Kingdom, Denmark, Germany, Ireland, Israel, China, Hong Kong, India, Sweden, and Canada. SVBFG,
2022 10-K, 8–9.
18 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

SVBFG provided financial services to both emerging growth and mature companies in the tech-
nology and life sciences sectors, with a focus on attracting early-stage or start-up companies as
clients and retaining those companies as clients as they grow through the various stages of their
life cycles.30 According to its website, SVBFG provided banking services for “innovators, entrepre-
neurs, and investors,” including “nearly half [of] U.S. venture-backed technology and life sciences
companies.”31 As a result, SVBFG’s client base was heavily concentrated in venture capital-backed
(VC-backed) and early-stage start-up firms.

SVBFG’s Rapid Growth
At year-end 1983, SVB’s assets were approxi-
Figure 3. SVBFG and banking industry
total assets mately $18 million, and SVBFG grew gradually
through 2019.32 Between 2019 and 2021,
Index (2017:Q4 = 100) SVBFG tripled in size. According to SVBFG’s
500
earnings release, 2021 was an “exceptional
212B
211B year of growth driven by outstanding client
400
liquidity”33 during which low interest rates
SVBFG
Industry were an amplifying factor.34 SVBFG attributed
300 its deposit growth to clients “obtaining liquid-
116B ity through liquidity events, such as IPOs,
secondary offerings, SPAC fundraising, venture
200
71B 28T capital investments, acquisitions, and other
26T 28T
57B
51B fundraising activities—which during 2021 and
100
21T 22T 22T early 2022 were at notably high levels.”35
2017 2018 2019 2020 2021 2022

Note: The key identifies lines in order from top to
While low interest rates and more-frequent
bottom. All values indexed to 100 at year-end 2017. client funding events affected all financial
Values are as of year-end. Values are in billions of dol-
lars for SVBFG and in trillions of dollars for the institutions and their clients, SVBFG saw an
industry. Industry aggregate includes all top-holder
firms. outsized impact because of its concentration
Source: FR Y-9C and Call Report. in venture capital and start-up clients, and
SVBFG invested these deposits in long-dated

30
SVBFG, 2022 10-K, 32-33.
31
SVBFG, Corporate Overview, October 2022, 5, https://www.svb.com/globalassets/library/uploadedfiles/svb_corporate_
overview_q3_2022.pdf.
32
Data derived from SVB’s Consolidated Reports of Condition and Income (Call Report) on Federal Financial Institutions
Examination Council’s Form FFIEC 041.
33
See SVBFG, SVB Financial Group Announces 2021 Fourth Quarter and Full Year Financial Results (2021 Fourth Quarter
Financial Results), 1, January 20, 2022, https://s201.q4cdn.com/589201576/files/doc_financials/2022/01/4Q21-
Earnings-Release-FINAL.pdf.
34
SVBFG, Q4 2021 Financial Highlights, 8, January 2022, https://s201.q4cdn.com/589201576/files/doc_presentations/
2022/01/01/Q4_2021_IR_Presentation_vFINAL.pdf.
35
SVBFG, 2022 10-K, 32.
Evolution of Silicon Valley Bank 19

securities. SVBFG’s assets grew 271 percent from year-end 2018 to year-end 2021, compared
to 29 percent for the banking industry (figure 3). Asset growth slowed dramatically in 2022 as
tech-sector activity slowed in a rising-interest-rate environment.

SVBFG and the Tech Sector
SVBFG’s customer base was heavily concentrated in VC-backed technology and life sciences
companies. VC-backed companies accounted for more than half of SVBFG’s deposits at year-end
2022, and client funds that SVBFG placed off-balance-sheet were even more concentrated in the
same client group (figure 4).36 This concentration linked SVBFG’s funding growth directly to VC deal
activity. As VC deal activity boomed in 2021 and early 2022 (figure 5), SVBFG’s clients received
investment proceeds, which were then deposited at SVB, increasing SVBFG’s deposit levels
(figure 6).

Figure 4. SVBFG client funds by client type

Source: SVBFG 2022:Q4 financial highlights, January 19, 2023.

36
See SVBFG, SVB Financial Group announces 2022 Fourth Quarter Financial Results, 6, January 19, 2023, https://
s201.q4cdn.com/589201576/files/doc_financials/2022/q4/4Q22-SIVB-Earnings-Release-Final.pdf. “Off-Balance
sheet client investment funds,” including sweep money market accounts, third-party funds managed by SVB, and repo
investments, are “maintained at third-party financial institutions.”
20 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

In the second half of 2022, VC activity fell sharply as part of a broader pullback in tech invest-
ment, which was driven by lower investor risk appetite as interest rates rose and concerns about
the economy increased. Slower funding for VC-backed clients led to slower inflows into SVBFG’s

Figure 5. U.S. venture capital (VC) deal activity by quarter

100 Billions of dollars Number of deals 6,000
90 Deal value
Deal count 5,000
80
70
4,000
60
50 3,000
40
2,000
30
20
1,000
10
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017 2018 2019 2020 2021 2022

Note: Deal activity is defined as equity investments into startup companies from an outside source.
Source: PitchBook Data, Inc., Private Equity and Venture Capital Databases Research Platform, https://pitchbook.com/
products.

Figure 6. Composition of SVBFG liabilities

Billions of dollars
250
1. Other liabilities 5. Non-interest-bearing foreign deposits
2. Subordinated notes and debentures 6. Interest-bearing domestic deposits
200
3. Other borrowed money 7. Non-interest-bearing domestic deposits
4. Interest-bearing foreign deposits
150

100

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017 2018 2019 2020 2021 2022

Note: The key identifies areas in order from top to bottom. SVBFG’s other borrowed money liabilities represent obliga-
tions with a maturity of one year or less.
Source: FR Y-9C.
Evolution of Silicon Valley Bank 21

client accounts. In addition, SVBFG management stated that client fund balances were negatively
affected by an increase in deposit outflows as clients withdrew more cash to fund their business
operations.37 Further, the majority of SVB’s deposits were uninsured (figure 7). As of year-end
2022, approximately 94 percent of SVBFG’s total deposits were uninsured.38

Figure 7. SVB deposit insurance coverage

Billions of dollars
200
Insured domestic deposits
180
Uninsured domestic deposits
160
140
120
100
80
60
40
20
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017 2018 2019 2020 2021 2022

Note: The key identifies areas in order from top to bottom.
Source: Call Report.

SVBFG chose to invest a large portion of client deposits in long-dated, held-to-maturity (HTM), gov-
ernment or agency-issued mortgage-backed securities (agency MBS) (figure 8). These securities
are low risk from a credit perspective and provide a predictable return based on the interest rate
at the time of purchase. As of December 31, 2022, SVBFG’s total HTM securities portfolio had a
weighted-average duration of 6.2 years, and the majority of SVBFG’s HTM portfolio consisted of
agency MBS with a maturity of 10 years or more.39

To be classified as HTM, securities must be purchased with the intent and ability to be held until
maturity. Classification as HTM enables the securities booked in this fashion to be carried at
amortized historical cost rather than at their fluctuating mark-to-market value. Generally, if a bank
sells a portion of its HTM portfolio, the entire portfolio would be required to be reclassified as
AFS and marked to market. In view of this accounting constraint and the large growth that had

37
SVBFG, Strategic Actions/Q1 ’23 Mid-Quarter Update, 16, March 8, 2023, https://s201.q4cdn.com/589201576/files/
doc_downloads/2023/03/Q1-2023-Mid-Quarter-Update-vFINAL3-030823.pdf.
38
Data derived from SVB’s December 31, 2022, Call Report and SVBFG’s December 31, 2022, Consolidated Financial
Statement for Holding Companies (Form FR Y-9C).
39
SVBFG, 2022 10-K, 66.
22 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Figure 8. Composition of SVBFG assets

250

Other
200
Loans/leases held for investment, net of ALLL
Held-to-maturity securities
150
Available-for-sale securities

100

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017 2018 2019 2020 2021 2022

Note: The key identifies areas in order from top to bottom. ALLL is allowance for loan and lease losses.
Source: FR Y-9C.

occurred in its HTM portfolio, SVBFG was limited in its ability to adjust its portfolio as the rate
environment changed. In 2022, as interest rates began to rise, SVBFG saw a rapid increase in
unrealized losses on both its HTM and available-for-sale (AFS) portfolios (figure 9).40

SVBFG Relative to Peers
SVBFG’s tech-focused business model made it an outlier relative to its peers in terms of growth,
funding mix, and composition of the balance sheet (table 1). As of year-end 2022, SVBFG’s secu-
rities portfolio as a share of total assets was more than double the large banking organization
(LBO) peer group, and SVBFG’s HTM portfolio, as a percentage of total securities, was also nearly
double that of the average LBO. SVBFG’s uninsured deposits as a percentage of total deposits
were more than double the LBO average. At the same time, SVBFG’s common equity tier 1 capital
ratio (12 percent) was 200 basis points higher than the LBO average (10 percent).41

SVB’s Failure
In 2023, SVB’s deposit outflows accelerated as clients burned through cash, according to SVBFG
public documents. Concerns increased following a Financial Times article that highlighted SVBFG’s
large securities portfolio.42 On March 8, SVBFG announced a restructuring of its balance sheet,

40
“Unrealized gains or losses” refers to the difference between the value of the security at the time of purchase and
the price of the security today, if it were sold on the market. Since HTM securities are meant to be held until maturity,
any decline in the value from the purchase date is considered an unrealized loss. While unrealized losses must be
disclosed in financial statements, they do not change the assets’ value on the balance sheet itself.
41
Data derived from SVBFG’s December 31, 2022, FR Y-9C.
42
Tabby Kinder, Dan McCrum, Antoine Gara, and Joshua Franklin, “Silicon Valley Bank Profit Squeeze in Tech Downturn
Evolution of Silicon Valley Bank 23

including a completed sale of $21 billion of AFS securities for a $1.8 billion after-tax loss and
a planned equity offering of $2.25 billion. SVBFG also guided investors to expect lower growth

Figure 9. Estimated unrealized gains (losses) on SVBFG’s investment portfolio securities

Billions of dollars
5

–5
Held-to-maturity
Available-for-sale
–10

–15

–20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017 2018 2019 2020 2021 2022

Note: Estimated unrealized losses on securities calculated as: (held-to-maturity fair value less held-to-maturity amor-
tized cost) + (available-for-sale fair value less available-for-sale amortized cost). Estimates do not reflect losses
related to available-for-sale securities that were transferred to held-to-maturity and do not reflect hedging impacts
or tax consequences.
Source: FR Y-9C.

Table 1. Peer comparison, 2022:Q4
Percent

Metric SVBFG LBOs
Loans as a percentage of total assets 35 58
Securities as a percentage of total assets 55 25
Held-to-maturity securities as a percentage of total securities 78 42
Total deposits as a percentage of total liabilities 89 82
Uninsured deposits as a percentage of total deposits 94 41
Common equity tier 1 capital as a percentage of total risk-weighted assets 12 10

Note: Values for large banking organizations (LBOs) represent weighted averages of all U.S. bank holding companies and savings & loan
holding companies with total assets greater than $100 billion, with the exception of banking organizations in the Large Institution Supervision
Coordinating Committee (LISCC) supervisory portfolio.
Source: FR Y-9C and Call Report.

Attracts Short Sellers,” Financial Times, February 22, 2023, https://www.ft.com/content/0387e331-61b4-4848-
9e50-04775b4c3fa7.
24 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

and income for fiscal year 2023 amid continued slowdown in tech sector activity.43 SVBFG noted
that the credit rating agencies Moody’s and S&P were considering negative ratings actions. In an
accompanying message to investors, management cited its expectation for “continued slow public
markets, further declines in venture capital deployment, and a continued elevated cash burn” as
pressuring 2023 earnings performance.44 Moreover, on March 8, Silvergate Capital Corporation
announced an intention to wind down operations and voluntarily liquidate Silvergate Bank, which
further affected depositor sentiment.45

Uninsured depositors interpreted SVBFG’s announcements on March 8 as a signal that SVBFG
was in financial distress and began withdrawing deposits on March 9, when SVB experienced a
total deposit outflow of over $40 billion. This run on deposits at SVB appears to have been fueled
by social media and SVB’s concentrated network of venture capital investors and technology firms
that withdrew their deposits in a coordinated manner with unprecedented speed. On the evening
of March 9 and into the morning of March 10, SVB communicated to supervisors that the firm
expected an additional over $100 billion in outflows during the day on March 10. SVB did not have
enough cash or collateral to meet the extraordinary and rapid outflows. The California Depart-
ment of Financial Protection and Innovation (CDFPI) closed SVB on the morning of March 10 and
appointed the FDIC as receiver.

SVBFG’s rapid failure can be linked directly to its concentration in uninsured deposit funding from
the cyclical technology and VC sector and, as discussed elsewhere in this report, the failure of
SVBFG’s board and management to manage the liquidity and interest-rate risk that was assumed
by SVBFG. SVBFG benefited from the record-high deposit inflows during rapid VC and tech sector
growth, supported in part by a period of exceptionally low interest rates. SVBFG invested those
deposits in longer-term securities and did not effectively manage the interest-rate risk, including
actively removing hedges as rates were rising. At the same time, SVBFG failed to manage the risks
of its liabilities, which proved much more unstable than anticipated. Deposit outflows from increas-
ingly cash-constrained tech and VC-backed firms quickly accelerated as social networks, media,
and other ties reinforced a run dynamic that played out at remarkable pace.

43
See SVBFG, Strategic Actions/Q1 ’23 Mid-Quarter Update, 17, 19.
44
SVBFG, Message to Stakeholders Regarding Recent Strategic Actions Taken by SVB, March 8, 2023, https://s201.
q4cdn.com/589201576/files/doc_downloads/2023/03/r/Q1-2023-Investor-Letter.FINAL-030823.pdf, 3.
45
Silvergate Capital Corporation, “Silvergate Capital Corporation Announces Intent to Wind Down Operations and Volun-
tarily Liquidate Silvergate Bank,” news release, March 8, 2023, https://ir.silvergate.com/news/news-details/2023/
Silvergate-Capital-Corporation-Announces-Intent-to-Wind-Down-Operations-and-Voluntarily-Liquidate-Silvergate-Bank/
default.aspx.
Evolution of Silicon Valley Bank 25

External Views
The broader market followed these trends. SVBFG’s equity price (ticker “SIVB”) peaked on
November 15, 2021, and declined through year-end 2022 as tech sector activity slowed, unre-
alized losses accumulated, and depositor growth slowed (figure 10). Until SVBFG’s announced
restructuring actions on March 8, 2023, however, SVBFG’s equity price had been relatively stable
before deteriorating sharply following the balance sheet restructuring. As of March 1, 2023, most
equity analysts covering SIVB rated SVBFG a “Buy” (12) or “Hold” (11) vs. “Sell” (1).46 Data from
FINRA, however, show rising short interest beginning in April 2022, which roughly coincides with
when SVBFG began to accumulate substantial unrealized losses.47

Figure 10. SVBFG stock price performance

Index (January 3, 2017 = 100)
500

400
SVBFG
S&P 500 Index
300 KBW bank index

200

100

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2017 2018 2019 2020 2021 2022

Note: All values indexed to 100 on January 3, 2017.
Source: Bloomberg Finance L.P.

The credit rating agencies had a generally stable outlook on both SVBFG and SVB, and ratings
stayed stable from 2015 until March 2023. Prior to March 2023, Moody’s last changed SVBFG’s
rating in 2007. As part of the March 8, 2023, announcement of the balance sheet restructuring,
SVBFG acknowledged the possibility of negative ratings actions by Moody’s and S&P.

46
Source: Bloomberg.
47
See FINRA, Equity Short Interest Data, https://www.finra.org/finra-data/browse-catalog/equity-short-interest/data.
27

Federal Reserve Supervision
Overview
This section reviews the Federal Reserve’s supervisory activities from 2017 through the period
of most rapid growth for SVBFG, and the firm’s transition from the regional banking organization
(RBO) portfolio to the large and foreign banking organization (LFBO) portfolio. The assessment
focuses on the primary contributors to the failure of SVB: governance and risk management, liquid-
ity risk, and interest rate risk and investment portfolio management. The scope is not a compre-
hensive review of all supervisory activity. For example, there was substantial supervisory activity
during this period in areas like information technology (IT) that is not a focus of this review.

This report highlights issues supervisors
Figure 11. SVBFG/SVB number of supervisory
found, how the Federal Reserve addressed issues (MRAs/MRIAs)
those issues with SVBFG management, and
the supervisory actions that were taken. This SVBFG/SVB number of issues (MRAs/MRIAs)
35
report also highlights issues that should have 30 31
30
been detected by the examiners and other 25
20
actions that could have or should have 20 17 18
15
been taken. 14 14 15
13
15
10
9 8
5 5 1 0
Over this period, supervisors opened and 0
closed a steady stream of supervisory findings 2019 2020 2021 2022 2023
in the form of MRAs and MRIAs (figure 11), Total number of active SVBFG/SVB issues
Number of SVBFG/SVB issues opened
and SVBFG ended 2022 with 31 open super-
Number of SVBFG/SVB issues closed
visory findings (see table 2). From 2019,
the Federal Reserve issued 54 supervisory Note: Key identifies series in order from top to bottom.
Displays the number of supervisory issues that
findings to SVBFG. were opened or closed for SVB or SVBFG, as well
as the number that were active at year-end and on
March 10, 2023, when SVB was closed. Does not
include four consumer compliance issues.
The timing to close a supervisory finding var-
Source: Internal Federal Reserve supervisory
ies considerably based on the specific issues databases.
being addressed and the necessary time to
remediate them (figure 12).
28 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Table 2. Open supervisory issues (MRAs/MRIAs) at SVBFG/SVB, by category and date opened

Date opened Category Issue
Capital planning and positions
8/17/2021 MRA Governance process for lending procedures
8/17/2021 MRA Loan risk rating granularity
8/19/2022 MRA Allowance for credit loss (ACL) stress methodology
Liquidity risk management and positions
11/2/2021 MRIA Enhanced liquidity risk management project plan
11/2/2021 MRIA Weak risk management and audit oversight of liquidity
11/2/2021 MRA Contingency funding plan
11/2/2021 MRA Deposit segmentation
11/2/2021 MRA Internal liquidity stress testing design
11/2/2021 MRA Liquidity limits framework
Governance and controls
6/5/2019 MRA Systems/technology second line of defense
6/3/2020 MRIA Vulnerability remediation
6/3/2020 MRA Identity access management
2/11/2021 MRIA IT asset management
2/11/2021 MRIA Vendor management
2/11/2021 MRA Data governance
2/11/2021 MRA Data protection
5/31/2022 MRIA Board effectiveness
5/31/2022 MRIA Internal audit effectiveness
5/31/2022 MRIA Risk-management program
10/7/2022 MRIA Identity and access management governance and oversight
10/7/2022 MRIA Privileged access management (PAM)
10/7/2022 MRA Identity access management lifecycle
10/7/2022 MRA Identity access management logging, monitoring, and detection
11/15/2022 MRA Interest rate risk (IRR) simulation and modeling
11/21/2022 MRA Trust and fiduciary services (T&FS) oversight and risk management
12/21/2022 MRIA Gramm–Leach–Bliley Act 501(b) information security program
12/21/2022 MRA Cybersecurity risk assessment
12/21/2022 MRA Systems development/deployment methodology and practices
1/31/2023 MRIA Third-party risk management governance and risk identification
Bank Secrecy Act/Anti-Money Laundering
6/24/2022 MRA Oversight of compliance monitoring and testing
6/24/2022 MRA Sanctions country of interest risk management

Note: Supervisory issues include MRAs and MRIAs (highlighted). List includes supervisory issues open as of March 10, 2023, for both SVB
and SVBFG. “Date opened” indicates the date the issue was communicated to the firm. Does not include four open consumer compli-
ance issues.
Source: Internal Federal Reserve supervisory databases.
Federal Reserve Supervision 29

Figure 12. Timeline of SVBFG/SVB supervisory issues (MRAs/MRIAs)

Issue type Category
Capital planning MRA
and positions
Liquidity MRIA
risk management MRA
and positions
Governance MRIA
and controls

MRA
Transition from
RBO to LFBO
portfolio occurred
on Feb. 25, 2021

Bank Secrecy Act/ MRA
Anti-Money
Laundering
2017 2018 2019 2020 2021 2022 2023

Closed Open

Note: Includes MRAs and MRIAs opened from 2017 to 2023 on SVB and SVBFG. Does not include issues opened prior
to 2017 or consumer compliance issues. Issue status reflects the status of each supervisory issue when the firm was
closed on March 10, 2023.
Source: Internal Federal Reserve supervisory databases.

Supervisory Portfolio Structure and Supervisory Activities
Supervisory Portfolio Structure

The Federal Reserve categorizes supervised firms into portfolios for which supervisory activities
are scaled to a firm’s risks, size, complexity, and business activities and the regulatory require-
ments applicable to a given firm. This report focuses on two of those portfolios:

• Regional banking organizations (RBOs): U.S. firms with total assets between $10 billion and
$100 billion

• Large and foreign banking organizations (LFBOs): U.S. firms with total assets of $100 billion or
more and all foreign banking organizations (FBOs) operating in the U.S. regardless of size48

48
The eight U.S. global systemically important banks are supervised in the Large Institution Supervision Coordinating
Committee (LISCC).
30 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

RBO supervision focuses on the ability of firms within the portfolio to operate in a safe and sound
manner and meet the needs of the consumers and businesses in their communities and regions.
RBO supervision is delegated to the Reserve Banks, with oversight from the Board. For each
supervised firm, Reserve Banks designate a member of supervisory staff as a central point of con-
tact (CPC), who is responsible for supervision of the firm. RBO supervision combines continuous
monitoring and firm-specific, point-in-time exams.

For the RBO portfolio, the frequency and intensity of continuous monitoring and institution-specific
exams is set in part through the Bank Exams Tailored to Risk (BETR) program, designed to lever-
age data and surveillance to reduce staffing and burden on firms deemed low risk and to enhance
supervision of high-risk firms.49 RBO supervision includes the regional banking organization man-
agement group (RBOMG). The RBOMG is a Federal Reserve System committee designed to foster
communication across Reserve Banks to promote consistent and effective implementation of
supervisory policies and assessments.

LFBO supervision is also delegated to the Reserve Banks but with greater Board staff involvement
on substantive topics than in RBO supervision. Reserve Banks select CPCs and assign dedicated
supervisory teams (DSTs) who are responsible for supervision of firms in their respective Dis-
tricts. The supervisory plans for LFBO firms are based on portfolio-wide LFBO Management Group
(LFBOMG) principles.

LFBO supervision combines continuous monitoring, firm-specific examinations, and horizontal
target examinations. Horizontal exams use the same examination scope across multiple firms,
allowing for a comparison of risks and risk-management practices. Additionally, the LFBOMG
discusses supervisory ratings across firms in the portfolio at least annually. While discussed with
the LFBOMG, supervisory ratings decisions are technically the responsibility of Reserve Banks.
In practice, ratings are agreed on by both the individual Reserve Bank and Board staff. The same
Board staff are involved in Reserve Bank oversight evaluations discussed in the next section.

While there are some similarities in the supervision of RBOs and LFBOs, there are also important
differences. Supervision of large firms, including SVBFG since 2021, focuses on enhancing the
resiliency of a firm to lower the probability of its failure or inability to serve as a financial interme-
diary and to reduce the impact of its failure on the broader financial system.50 The largest insti-
tutions are subject to enhanced prudential standards (EPS) as a result of their size or complexity

49
Board of Governors of the Federal Reserve System, “Bank Exams Tailored to Risk (BETR),” SR letter 19-9 (June 3,
2019), https://www.federalreserve.gov/supervisionreg/srletters/sr1909.htm.
50
Board of Governors of the Federal Reserve System, “Consolidated Supervision Framework for Large Financial Insti-
tutions,” SR letter 12-17/CA letter 12-14 (December 17, 2012), https://www.federalreserve.gov/supervisionreg/
srletters/sr1217.htm.
Federal Reserve Supervision 31

and, in some cases, their systemic importance. Continuous monitoring is a more important super-
visory activity for LFBOs.

In July 2018, the Board raised the threshold for heightened supervision by the LFBO portfolio
from $50 billion to $100 billion to track the new EGRRCPA thresholds. This delayed application of
heightened supervisory expectations to SVBFG by at least three years.

Reserve Bank Oversight

Within the Board, the Divisions of Supervision and Regulation (Board S&R) and Consumer and
Community Affairs (DCCA) assess the effectiveness of the Reserve Banks’ execution of super-
visory authority delegated under the Federal Reserve Act. The Federal Reserve Act requires the
Board to “at least once each year, order an examination of each Federal Reserve Bank.”51 Annu-
ally, Board S&R staff, jointly with DCCA staff, provide annual assessment letters with respect to
supervision to the Reserve Bank presidents. The Reserve Bank annual assessment letters provide
performance ratings for the Safety and Soundness and Consumer Compliance supervision pro-
grams as well as individual supervision portfolio and supporting function ratings. Possible ratings
include “Strong,” “Effective,” “Marginally Effective,” and “Requires Improvement.”

Since 2019, the ratings issued by Board
Table 3. Ratings issued to FRBSF by Board
S&R and DCCA to FRBSF with respect to its staff for FRBSF’s supervisory program
RBO and LFBO supervision programs were all RBO LFBO
“Strong” or “Effective” (table 3). Note that Year supervisory program supervisory program
rating rating
the 2018 ratings were done under a different 2022 Effective Strong
framework. For the combined safety-and- 2021 Strong Effective
soundness rating, FRBSF received a “Strong” 2020 Strong Effective
rating in 2018. 2019 Effective Effective
2018 Safety-and-soundness program rating: Strong

In 2022, Board S&R staff noted, with respect Note: The ratings in bold are the years when supervision of
SVBFG was considered in the ratings issued. Prior to 2019,
to the SVBFG transition, that supervisory Board staff did not communicate individual portfolio ratings;
rather, it provided a safety-and-soundness program rating that
planning had been effective and necessarily included all portfolios.
Source: Internal Federal Reserve oversight materials.
agile as the dedicated supervisory team had
focused the supervisory plans on key knowl-
edge gaps, primarily risk management, board
effectiveness, and internal audit. Board S&R staff also noted that the DST demonstrated superior
ability and that the SVBFG transition from RBO to LFBO had required the team and FRB leadership
to navigate a complex supervisory profile.

51
12 U.S.C. § 485.
32 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Regional Banking Organization (RBO) Supervision

Board S&R staff maintain the Commercial Bank Examination Manual,52 which outlines examination
objectives and procedures for examiners to follow in evaluating the safety and soundness and
compliance with banking laws of state member banks. Additionally, the Federal Reserve Board has
issued supervisory guidance letters applicable to regional banks that examiners use to assess
firm risks, including financial, operational, legal and compliance risks as well as risk management.
Much of the relevant guidance for regional firms today was developed following the Global
Financial Crisis and the Dodd-Frank Act, as modified in 2018 by EGRRCPA and in 2019 by the
Board’s tailoring rule and related rulemakings.53

According to Board procedures for the RBO portfolio, the supervisory plan should demonstrate
that the supervisory concerns identified through the risk assessment process and the deficiencies
noted in previous examination or inspection activities are, or will be, addressed. The plan should
also identify financial and managerial strengths and emerging risks. Supervision is then tailored
to reflect the levels of risk present and minimize regulatory burden for the bank. The BETR model
provides guidance on allocation of examination hours so that resources spent on low-risk firms
can be limited, shifting regulatory attention and Federal Reserve examiner resources to high-
risk firms.54

CPCs schedule risk-based reviews to cover unique risks of a firm. Continuous monitoring activities
include regular meetings with institution senior management, analysis of key internal management
reports and other internal and external information, leveraging control functions (i.e., internal
audit, internal loan review, and other risk-management functions), and coordination with other reg-
ulators. Any supervisory activity can result in changes to supervisory ratings and the issuance of
supervisory findings, such as MRAs and MRIAs. Annually, the Federal Reserve assigns supervisory
ratings to RBO institutions according to the RFI rating system.

Large and Foreign Banking Organization (LFBO) Supervision

LFBO supervisory teams are expected to develop and maintain supervisory plans that are current
and tailored to a firm’s changing risks and issues, as modified by EGRRCPA in 2018, the Board’s
2019 tailoring rule, and related rulemakings, including accounting for the activities of other pri-
mary and functional supervisors in which they are participating. LFBO supervisory plans include
horizontal examinations, allowing for comparison of practices across multiple firms in the portfo-
lio. Annual horizontal examinations include the horizontal capital review (HCR), horizontal liquidity

52
Board of Governors of the Federal Reserve System, Commercial Bank Examination Manual, https://www.federalreserve.
gov/publications/supervision_cbem.htm.
53
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). Economic
Growth, Regulatory Relief, and Consumer Protection Act, Pub. L. No. 115-174, 132 Stat. 1296, 1356, § 401(a) (2018)
(codified at 12 U.S.C. § 5365).
54
SR letter 19-9.
Federal Reserve Supervision 33

review (HLR), and the horizontal cybersecurity review, which inform the capital, liquidity, and gover-
nance and control ratings. Supervisory plans are expected to be updated to reflect changes in a
firm’s activities. These changes are informed by the DST’s continuous monitoring activities.

Annually, the Federal Reserve rates LFBO holding companies according to the LFI rating system.55
It is an evaluation of whether a firm possesses sufficient financial and operational strength and
resilience to maintain safe-and-sound operations and comply with laws and regulations.

Under the LFI rating system, a firm must be rated “Broadly Meets Expectations” or “Conditionally
Meets Expectations” for each of the three components (capital planning and positions, liquidity
risk management and positions, and governance and controls) to be considered “well managed”
in accordance with various statutes and regulations. A firm is considered to be in “satisfactory”
condition if all component ratings are either “Broadly Meets Expectations” or “Conditionally Meets
Expectations.”

One distinctive component of large bank supervision is a focus on continuous monitoring events,
which are activities that occur on a regular (e.g., weekly, monthly, or quarterly) or ad hoc basis
throughout the supervisory cycle and include meetings with management, reviews of firm-provided
management information systems (MIS) and risk reports, analyses of public and confidential
supervisory information, and meetings with other supervisors.56 Continuous monitoring is included
in the overall supervisory plan. The objective of continuous monitoring is to gather and analyze
information to develop and maintain a current understanding of the organization and its risk profile
and to monitor changes in risk-management practices, control functions, and business strategies.
Monitoring also allows for early signals on risk that can be acted on or escalated. Often, informa-
tion gleaned from monitoring activities results in the DST adjusting or clarifying scope objectives
for upcoming reviews or making other changes to the supervisory plan.

Ratings

Federal banking regulators, including the Federal Reserve System, use a number of different rating
systems for different types of financial institutions. For the assessment of SVBFG and SVB, this
report focuses on the three most relevant. Each includes a specific set of components and a
numeric scale to provide comparisons across similar financial firms (table 4).

• CAMELS ratings system applies to insured depository institutions (IDIs), including SVB.

• RFI ratings system applies to holding companies with total consolidated assets below
$100 billion, including SVBFG until 2021.

55
SR letter 19-3.
56
MIS reports may contain confidential business information, which is generally not available to the public.
34 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

• Large financial institution (LFI) rating system applies to holding companies with total
consolidated assets above $100 billion, including SVBFG from 2021.

Table 4. Supervisory ratings systems

Rating system Applicable entity Ratings and components Scale
Holding companies
LFI rating system—Large financial ● Bank holding companies (BHCs) Three components: Each LFI component is rated on a
institution rating system and certain saving and loan ● Capital planning & positions four-point, non-numeric scale.
holding companies (SLHCs) with
total consolidated assets >
● Liquidity risk management & There are no composite or
$100 billion positions subcomponent ratings.
● Governance & controls ● Broadly Meets Expectations
● U.S. intermediate holding
companies (IHCs) of foreign (BME)
banking organizations (FBO) with ● Conditionally Meets
total consolidated assets > Expectations (CME)
$50 billion ● Deficient - 1 (D-1)

● Deficient - 2 (D-2)

RFI rating system ● BHCs and certain SLHCs with Three component ratings (RFI), a ● All component and subcompo-
total consolidated assets < composite rating (C), and a nent ratings (except I) are rated
$100 billion depository institution (D) component on a five-point numeric scale:
● For noncomplex holding
companies with assets at or rating. Under the RFI components – 1 – Strong
below $3 billion, only the R and C are subcomponent ratings. The – 2 – Satisfactory
components are applied. (See composite rating is not an arithmetic
SR letter 13-21.) – 3 – Fair
average.
– 4 – Marginal
Example: RFI/C (D) – 5 – Unsatisfactory
● Risk management:
● I component:
– Board and senior management – 1 – Low likelihood of
oversight significant negative impact
– Policies, procedures, and limits – 2 – Limited…
– Risk monitoring and – 3 – Moderate…
management information
systems – 4 – Considerable…
– Internal controls, including – 5 – High…
internal audit
● Financial condition:

– Capital adequacy
– Asset quality
– Earnings
– Liquidity
● Impact to insured depositories
from nonbank subsidiaries
Insured depository institutions/banks
CAMELS rating system—Uniform ● All insured depository institutions Banks are rated on each of the Each of the components and
financial institutions rating system following components, and composites is rated on a 1 to 5
used by the Federal Financial composite ratings for safety and scale:
Institutions Examination Council soundness and risk management. ● 1 – Strong
(FFIEC) agencies. The composite rating is not an ● 2 – Satisfactory
arithmetic average. ● 3 – Less than satisfactory
Example: CAMELS/C (Risk ● 4 – Deficient
Management)
● 5 – Critically deficient
● Capital adequacy
● Asset quality
● Management

● Earnings

● Liquidity

● Sensitivity to market risk
Federal Reserve Supervision 35

Transition of SVBFG from Regional Banking Organization (RBO) Supervision to
Large and Foreign Banking Organization (LFBO) Supervision

Based on the Board’s 2019 tailoring rule, SVBFG shifted into the LFBO portfolio in February 2021
as the firm crossed the $100 billion threshold, which meant that the firm shifted from the lower-
intensity supervision of the RBO program to the heightened standards of LFBO supervision.

The transition of SVB from the RBO portfolio to the LFBO portfolio lacked a defined plan and pro-
cess. As a result, supervisory plans and staffing of the new team came after the transition, rather
than in the period leading up to it. Staff describe a sharp shift and “cliff effect” as SVBFG rapidly
went from RBO supervision to LFBO supervision, requiring building of a new supervisory team,
implementation of horizontal examination processes, establishment of more intense continuous
monitoring routines, and phasing in of EPS.

SVBFG moved into the LFBO portfolio because of extraordinary growth over a short period of time.
As detailed in subsequent sections, the firm was not prepared for EPS. When SVBFG crossed
the threshold, RBO supervisors were in the process of completing their annual ratings cycle. The
FRBSF RBO and new LFBO teams staff agreed to a transition period while the RBO team com-
pleted ratings and the new LFBO DST was being formed within FRBSF. The understanding was that
LFBO would take over supervision of SVB at the end of the RBO supervisory cycle in July 2021.

According to interviews, one reason supervisors did not increase supervisory intensity as SVBFG
grew toward the $100 billion threshold is that there was concern from policymakers and senior
leadership at the Board that supervisors would “pull forward” the EPS requirements before SVBFG
met the threshold. The Board of Governors’ implementation of EGRRCPA created stark differences
in the RBO and LFBO supervisory programs and constrained the ability to prepare a firm for the
transition between the two portfolios.

The accommodative supervisory stance and examination pause during COVID-19 amplified the
impact of the transition, resulting in the cancellation of examinations during a period of rapid
growth for SVBFG.

Policy Stance

57
SR letter 18-5.
36 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

supervisory guidance does not have the force and effect of law, but rather outlines expectations
and appropriate practices for a particular subject area or activity.58

Resources

In 2017, the Federal Reserve System (FRS) adopted a different budget approach for the System’s
business lines, including Supervision and Regulation (S&R). The budget approach emphasized
making trade-offs to align expenditures with strategic objectives, notably by shifting resources
toward areas that were viewed as strategic priorities. The addition of resources in the supervision
area required the endorsement of Board S&R.

For the Federal Reserve System as a whole, resources did not grow with the banking industry
(figure 13). From 2016 to 2022, banking sector assets grew 37 percent (nominal terms), while
FRS supervision headcount declined by 3 percent. This contrasts with the period after the Global
Financial Crisis in 2008–09 when the Federal Reserve made fundamental changes to its supervi-
sion program to enhance effectiveness and consistency, including steady growth of staffing from
2009 through 2016.

It is difficult to quantify the impact of this shift, but supervisory coverage of SVBFG declined while
SVBFG was in the RBO portfolio. For SVBFG in particular, supervision resources declined despite
the firm’s rapid growth and increased risk (figure 14). In the 2017 to 2019 period, supervisory

58
Role of Supervisory Guidance, 86 Fed. Reg. 18,173 (April 8, 2021), https://www.federalregister.gov/documents/
2021/04/08/2021-07146/role-of-supervisory-guidance.
Federal Reserve Supervision 37

Figure 13. Supervision staffing relative to banking industry assets

Index (2008 = 100)
200
Industry assets
Federal Reserve positions
180

160

140

120

100
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Note: All values indexed to 100 in 2008. The positions shown combine different staffing statistics for the Federal
Reserve Banks and the Board of Governors of the Federal Reserve System. Reserve Bank numbers presented include
the average number of personnel (ANP) or full-time equivalents (FTE) conducting supervision and regulation functions,
including consumer compliance. They are a proxy for staffing levels but do not reflect actual positions. Board numbers
presented include filled positions in the Division of Supervision and Regulation, excluding consumer compliance.
Banking industry assets include all top-holder firms.
Source: Internal Federal Reserve staffing databases, FR Y-9C, and Call Report.

Figure 14. SVBFG supervision hours relative to assets

Index (2017 = 100)
500

SVBFG supervision hours
400
SVBFG assets

300

200

100

0
2017 2018 2019 2020 2021 2022

Note: The key identifies bars in order from left to right. All values indexed to 100 in 2017. SVBFG supervision hours
reflect actual hours spent on scheduled supervisory activities of SVBFG.
Source: Internal Federal Reserve staff time databases and FR Y-9C.
38 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

hours were declining at the same time the firm was experiencing rapid growth. In 2020, decreased
supervision hours reflect the impact of the COVID-19 pandemic. This is also the period when there
was some pressure to reduce burden on firms under $100 billion. Hours dedicated to SVBFG did
not increase until it moved into the LFBO portfolio, at which point hours increased dramatically.

Supervisors approached SVBFG differently as it grew and moved from the RBO to the LFBO portfo-
lio. Consistent with the differing supervisory approach associated with each portfolio, the compo-
sition of supervisory activity conducted with respect to SVBFG shifted away from mandatory target
exams and toward continuous monitoring in 2022 (figure 15).

Figure 15. Actual hours spent on scheduled supervisory activities of SVBFG

Total hours
25,000
Continuous monitoring
Risk-based target
20,000 Horizontal/coordinated review
Mandatory target

15,000 BHC inspection/ratings roll-up
CAMELS examination
IT examination
10,000

5,000

0
2017 2018 2019 2020 2021 2022

Note: The key identifies bars in order from top to bottom.
Source: Internal Federal Reserve staff time databases.

Figure 16. Supervision resources for SVBFG
compared with peer institutions
When SVBFG transitioned to the LFBO port-
folio, FRBSF requested 12 additional staff in
Full-time equivalent staff (FTE)
15 March 2021 for a total of 20 FTE resources.
This request for additional resources reflected
12 Average for peer institutions the size and complexity of SVBFG. The request
SVBFG
was approved by Board staff in June 2021. As
9
of December 2022, the DST was staffed with
15 full-time employees. On the financial resil-
6
ience team, there were five dedicated staff.
3 Nonetheless, SVBFG received fewer supervi-
sory resources through 2021 relative to peer
0 institutions (figure 16).
2018 2019 2020 2021 2022

Source: Internal Federal Reserve staff time databases.
Federal Reserve Supervision 39

Overview of Supervisory Views
When SVBFG moved into the LFBO portfolio in 2021, staff initially focused on examinations cov-
ering key areas affected by the upcoming requirements of EPS, then pivoted to an examination of
broader governance and risk management. Initial exams and post-transition meetings indicated to
the team that risk management and controls had not kept pace with the growth of SVBFG.

Ratings

For SVBFG, the holding company, supervisors rated all components in the RFI rating system as
“Satisfactory-2” for every year from 2017 to 2021. When SVBFG moved to the LFBO portfolio,
supervisors rated it as “Broadly Meets Expectations” for Capital, “Conditionally Meets
Expectations” for Liquidity, and “Deficient-1” for Governance and Controls under the LFI ratings
system (table 5).

Table 5. RFI and LFI ratings for SVBFG

RFI rating LFI rating
Report Risk Financial Depository
disposition date management Composite Capital Liquidity G&C
condition Impact rating institution
rating rating rating rating
rating rating rating
6/14/17 2 2 2 2 2
6/13/18 2 2 2 2 2
4/11/19 2 2 2 2 2
5/8/20 2 2 2 2 2
7/9/21 2 2 2 2 2
8/17/22 BME CME D-1
10/11/22 BME

Note: Shading indicates a change in ratings or ratings system.
Source: Internal Federal Reserve supervisory databases.

For SVB, the subsidiary bank, supervisors rated all components except liquidity as “Satisfactory-2”
from 2017 to 2021. Liquidity was rated “Strong-1” from 2017 to 2021. After SVB moved to the
LFBO portfolio, supervisors downgraded the management and composite ratings to “Less than
Satisfactory-3” and the liquidity to “Satisfactory-2” (table 6).

Exam Timing

The Federal Reserve completed a large number of core exams for both SVB and SVBFG in the
years prior to the failure of SVBFG (figure 17). This figure covers all safety-and-soundness exams
mailed on or after January 1, 2017, that resulted in ratings as well as examinations in the areas
of liquidity, interest-rate risk, governance, and risk management.
40 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Table 6. CAMELS ratings for SVB

Sensitivity to
Report Asset Management Composite
Capital rating Earnings rating Liquidity rating market risk
disposition date quality rating rating rating
rating
3/7/17 2 2 2 2 1 2 2
2/14/18 2 2 2 2 1 2 2
3/6/19 2 2 2 2 1 2 2
4/13/20 2 2 2 2 1 2 2
5/3/21 2 2 2 2 1 2 2
8/17/22 2 2 3 2 2 2 3

Note: Shading indicates a change in ratings.
Source: Internal Federal Reserve supervisory databases.

Figure 17. Timeline of supervisory activities

Report
mailed
Start date date Event
10/3/16 3/7/17 CAMELS exam of SVB
12/27/16 6/14/17 Holding company inspection of SVBFG
10/2/17 2/14/18 CAMELS exam of SVB Transition from
12/4/17 6/13/18 Holding company inspection of SVBFG RBO to LFBO
portfolio occurred
10/1/18 3/6/19 CAMELS exam of SVB on Feb. 25, 2021
12/31/18 4/11/19 Holding company inspection of SVBFG
11/29/19 4/13/20 CAMELS exam of SVB
12/30/19 5/8/20 Holding company inspection of SVBFG
11/30/20 5/3/21 CAMELS exam of SVB
4/5/21 7/9/21 Holding company inspection of SVBFG
5/24/21 8/17/21 Asset quality and credit risk management target
8/16/21 11/2/21 Liquidity planning target
9/7/21 8/17/22 CAMELS exam of SVB
9/7/21 8/17/22 Holding company inspection of SVBFG
9/20/21 11/9/21 Capital planning target
3/14/22 5/31/22 Governance and risk management target
4/25/22 8/19/22 2022 LFBO horizontal capital review (HCR)
8/8/22 10/11/22 2022 LFBO dynamic rating roll-up—LFI Capital
8/22/22 11/15/22 CAMELS exam of SVB
10/3/22 12/27/22 Internal audit target exam
1/3/23 2023 LFBO Horizontal Liquidity Review (HLR)

2017 2018 2019 2020 2021 2022 2023

SVB SVBFG

Note: This figure shows all safety-and-soundness exams mailed on or after 1/1/2017 that resulted in ratings, as well
as examinations in the areas of liquidity, interest rate risk, governance, and risk management.
CAMELS examinations of SVB: These examinations focused on evaluating and rating capital adequacy, asset quality,
management, earnings, liquidity, and sensitivity to market risk. Risk management and composite ratings are also
issued in CAMELS examinations. These exams were conducted with CDFPI.
Holding company inspections of SVBFG: Inspections that assessed the organization’s overall risk management and con-
solidated financial condition, resulting in an RFI or LFI rating.
Source: Internal Federal Reserve supervisory databases.
Federal Reserve Supervision 41

Shortly after transitioning into LFBO supervision, capital and liquidity “readiness review” exam-
inations were conducted to assess compliance with current expectations and preparation for the
application of EPS. Note that these occurred after SVBFG had transitioned into the LFBO portfolio.
These included

• Capital planning target exam: Baseline assessment of stress testing and capital planning
capabilities against applicable expectations included in SR letter 12-759 and SR letter 12-1760
to inform the LFI Capital rating. The November 9, 2021, supervisory letter conveyed that capital
planning practices met applicable supervisory guidance.61 Additionally, management’s planned
enhancements to the capital plan structure aligned with the mandatory elements described in
the Capital Plan Rule.62

• Liquidity planning target exam: Baseline assessment of liquidity planning and stress testing
capabilities against applicable expectations in SR letter 10-663 and SR letter 12-7 to inform
the LFI Liquidity rating. The review focused on liquidity risk management practices separate
from SVBFG’s on-balance sheet liquidity positions. The November 2, 2021, supervisory
letter conveyed that SVBFG’s liquidity risk management practices were below supervisory
expectations set forth in applicable guidance.64

The first, and perhaps the most critical, examination in 2022 was of governance and risk man-
agement. The examination resulted in three MRIAs identifying material weaknesses in the board
of directors, risk management, and internal audit. The examination of internal audit in late 2022
provided additional confirmation that SVBFG struggled in this area.

• Governance and risk-management target exam:65 SVBFG’s governance and risk-management
practices were found to be below supervisory expectations in May 2022. The firm’s board had
not provided effective oversight to ensure senior management implemented risk-management
practices commensurate with the firm’s size and complexity. Previously identified supervisory
findings plus the material weaknesses identified in liquidity risk management indicated
weaknesses in SVBFG’s ability to self-identify internal control weaknesses and manage risks
proactively. Supervisors found SVBFG’s internal audit department had also not provided
appropriate coverage of SVBFG’s LFI readiness initiatives or independent risk function.

59
Board of Governors of the Federal Reserve System, “Supervisory Guidance on Stress Testing for Banking Organizations
with More Than $10 Billion in Total Consolidated Assets,” SR letter 12-7 (May 14, 2012), https://www.federalreserve.
gov/supervisionreg/srletters/sr1207.htm.
60
Board of Governors of the Federal Reserve System, “Consolidated Supervision Framework for Large Financial Institu-
tions, SR letter 12-17 (December 17, 2012), https://www.federalreserve.gov/supervisionreg/srletters/sr1217.htm.
61
SVBFG Capital Planning Target Supervisory letter, November 9, 2021.
62
12 C.F.R. § 225.8.
63
Board of Governors of the Federal Reserve System, “Interagency Policy Statement on Funding and Liquidity Risk Man-
agement,” SR letter 10-6 (March 17, 2010), https://www.federalreserve.gov/boarddocs/srletters/2010/sr1006.htm.
64
SVBFG Liquidity Planning Target Supervisory letter, November 2, 2021.
65
SVBFG and SVB Governance and Risk Management Target Supervisory letter, May 31, 2022.
42 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

• Internal audit (IA) target exam:66 The FRBSF and CDFPI completed a joint target exam of
SVBFG/SVB’s Internal Audit Program in October 2022. SVBFG/SVB’s internal audit function
was deemed not fully effective. The overall assessment was driven by material weaknesses
in the risk-assessment process, the process to define the IA audit universe, IA’s continuous
monitoring, and audit execution.

The issuing of the ratings was delayed for the 2021 supervisory cycle to allow for the governance
and risk-management examination to occur. As a result, the supervisory ratings letter, which was
based on supervisory work performed over the course of 2021 and the first half of 2022, was
jointly issued by the FRBSF and CDFPI on August 17, 2022.67 The letter formally communicated
the ratings that had been presented to SVBFG’s board on July 21, 2022, and represented the first
set of LFI ratings issued to SVBFG. The letter conveyed the following ratings to SVBFG: Governance
and Controls (G&C): “Deficient–1”; Liquidity (L): “Conditionally Meets Expectations”; Capital (C):
“Broadly Meets Expectations.”

The delay until August 2022 in issuing the 2021 supervisory ratings illustrates how the normal
supervisory practices did not keep up with SVBFG’s rapid expansion. The 2020 supervisory
ratings had been communicated to SVB in May 2021. SVB’s CAMELS Composite rating was a
“Satisfactory-2,”its management rating was a “Satisfactory-2,” and the RFI composite rating for
SVBFG was also a “Satisfactory-2.” The LFI team started vetting the 2021 LFI ratings in the Octo-
ber and November 2021 timeframe. Given the significant weaknesses identified during the liquid-
ity examination and during continuous monitoring, the team considered rating Governance and
Controls “Deficient-1.” However, the DST, LFBOMG, Board staff, and Reserve Bank staff decided
supervisors had not yet established the necessary support for such a downgrade given that only a
few months had passed since the previous supervisory team had rated SVBFG as “Satisfactory-2”
on a composite basis.

A broad view across the interviews was that the decision to postpone the initial ratings in 2021 or
consider a downgrade was part of a shift that the burden of proof was on supervisors rather than
firms, due process considerations that had been articulated by policymakers for several years, and
reluctance to overturn a recent rating.

Memorandum of Understanding (MOU)

When any one of the three LFI ratings (Governance and Controls, Liquidity, or Capital) is rated
“Deficient-1,” there is a rebuttable presumption that an informal enforcement action will be under-
taken. An MOU is an informal enforcement action. Shortly after the issuance of the August 2022

66
SVBFG and SVB Internal Audit Target Supervisory letter, December 27, 2022.
67
SVBFG and SVB 2021 Supervisory Ratings letter, August 17, 2022.
Federal Reserve Supervision 43

supervisory letter, FRBSF and CDFPI planned to develop and issue an MOU. The MOU provisions
would have reflected concerns noted in the 2022 Governance and Risk Management and 2021
Liquidity exams. The MOU was still in draft form and was in process of being submitted to the
CDFPI for another round of review when SVB failed. The MOU drafting process involves stakehold-
ers across all agencies, including FRBSF, Board S&R, Board Legal, and CDFPI, and can be time
consuming to complete. The SVBFG MOU was also delayed as stakeholders considered whether
upcoming examinations would contribute to the content of the draft MOU.

Continuous Monitoring

One notable output of continuous monitoring was a SVBFG “recession readiness” memoran-
dum written by the DST and provided to senior leadership at the FRBSF and the Board staff on
December 1, 2022.68 The memo discussed SVBFG’s key exposures related to liquidity, credit, and
operational risks and preparations for a possible recession. The memo conveyed that SVBFG’s
liquidity presented the greatest exposure in a recession. For year-to-date 2022, SVBFG had already
incurred $49 billion of net client outflows, or 12.5 percent of total client balances. The magnitude
of these outflows prompted SVBFG management to activate certain aspects of its contingency
funding plan.

In the short term, a higher cost of funds represented the most direct impact. The longer-term
impact was noted to be material charges against earnings if SVBFG was forced to liquidate its
securities portfolio to fund unexpected net deposit outflows. SVBFG’s liquidity buffer to fund
deposit outflows was comprised of cash reserves and U.S. government and agency investment
securities. However, the prevailing interest rate environment had resulted in material unrealized
losses in SVB’s securities portfolio.

Conclusions
SVBFG was supervised as a regional banking organization for over 20 years by the Federal
Reserve. Supervision of SVBFG proved inadequate to deal with the firm’s unique business model
and the rapid growth over the last four years. Supervisors recognized a gradual increase in liquid-
ity and market risks, but they did not fully appreciate the risks associated with the concentrated
deposit base or SVBFG’s investment portfolio strategy.

These shortcomings likely reflect a range of factors. Resources for SVBFG seem to have been
insufficient, which may reflect reallocation to face other demands (e.g., growth in the overall
banking system or emerging risks like cybersecurity or fintech). Staffing of exams while SVBFG
was in the RBO portfolio generally came from the community/regional bank pool of examiners,

68
Memorandum re Recession Readiness – Silicon Valley Bank, December 1, 2022. The memorandum was provided to the
Deputy Director of the Division of Supervision and Regulation at the Board of Governors, FRBSF Head of Supervision,
FRBSF SVP of Large Financial Institution Supervision, and FRBSF VP of LFBOs.
44 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

who may have lacked experience with governance and risk-management practices of more sizable
and complex institutions like SVBFG. Finally, the transition from the RBO to the LFBO portfolio led
to sizable cliff effects from the shifts in supervisory approaches and applicable regulation. This
contributed to delays in assessments and allowed time to pass as LFBO supervisors built their
understanding of SVBFG even as SVBFG’s financial condition deteriorated. The COVID-19 examina-
tion pause and a shift in policy stance after 2018 added to the impact.

As a final observation, the evolution of supervision in the LFBO portfolio involves a structure where
Board staff both participates in the supervisory process with the Reserve Bank and provides for-
mal oversight. This creates a potential conflict that may lead Reserve Bank staff to defer to Board
staff with oversight responsibilities.
45

Supervision of SVBFG by Critical
Risk Areas
The three critical weaknesses of SVBFG were: governance and risk management; liquidity risk
management; and interest rate risk and investment portfolio management. This section reviews
these three aspects of SVBFG’s operations and associated Federal Reserve supervision in
greater detail.

A consistent theme across each area is that SVBFG’s practices did not keep pace with its rapid
growth in size and risk. The board of directors’ and risk management’s experience and capabilities
were lacking for a firm that grew to over $200 billion in assets. With respect to both liquidity and
interest rate risk, the management team was focused on short-term measures of risk and man-
aging to profitability rather than understanding the longer-term risk exposure. Management was
slow to address weaknesses in risk management and the riskiness of its balance sheet positions.
Insufficiencies in the contingency funding plan, such as lacking sufficient capacity to monetize
the liquidity buffer, were identified in November 2021 and remained only partially resolved when
SVBFG failed.69

Supervision also failed to keep pace in these areas. Although supervisors issued a number of
supervisory findings in the four years leading up to SVBFG’s failure, they missed some key issues
that would eventually coalesce and lead to the rapid demise of SVBFG in March 2023. This
section highlights the problems at SVBFG that were identified by the review team, including what
supervisors found, what they missed, and what actions were taken in each key area. This section
of the report also provides perspective from the review team on areas where further supervisory
action may have been justified.

Governance and Risk Management
Overview

Corporate governance is the system of rules, practices, and processes that drive the direction and
control of a firm. In order for a firm to be resilient under a broad range of economic, operational,
and other stresses, the board of directors should provide for effective corporate governance with
the support of senior management.70 Supervisors assess governance structures, practices, and
processes to determine if they are effective on a stand-alone and collective basis. Supervisors
also assess: the board of directors’ oversight of management; management’s execution of the

69
SVBFG Liquidity Planning Target Supervisory letter, November 2, 2021.
70
SR letter 12-17.
46 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

strategy and risk appetite; business lines’ and finance’s management and control of the risks they
take; independent risk management’s oversight of firmwide risks; and execution by internal audit
of its assurance function.

SVBFG’s growth far outpaced the abilities of its board of directors and senior management. They
failed to establish a risk-management and control infrastructure suitable for the size and complex-
ity of SVBFG when it was a $50 billion firm, let alone when it grew to be a $200 billion firm. The
LFBO supervisory team recognized that governance and risk management were not sufficient for
a firm of the size and risk of SVBFG in late 2021, conducted additional examination work in early
2022, and downgraded the Governance and Controls rating in August 2022.71

RBO Supervision of Governance and Risk Management
Supervisors assessed the board of directors and senior management as “effective” throughout
SVBFG’s time in the RBO portfolio despite clear signs that governance and risk management were
not matching the growth of SVBFG. Even after supervisors began identifying and communicating
issues with governance and risk management in 2018, the bank’s CAMELS Management rating
was “Satisfactory-2” for 2018, 2019, and 2020.

The CAMELS ratings letter dated March 6, 2019, states that “significant efforts are still needed
to align risk-management practices with supervisory guidance (SR letter 16-11).”72 The letter also
indicates the existence of additional weaknesses in liquidity and interest rate risk management,
but these weaknesses were not reflected in the ratings. Similar feedback appears in the ratings
letter dated April 13, 2020, but the Management rating remained a “Satisfactory-2.”73 This letter
highlights an immature independent risk-management function that lacked authority, tools, and
resources to appropriately monitor and test controls.

On May 3, 2021, supervisors issued the final RBO-based supervisory ratings letter that provided
the ratings for the 2020 supervisory cycle.74 Management and the board of directors’ oversight
were again rated “Satisfactory-2” indicating they were largely effective. SVBFG was approaching
the $100 billion average total consolidated asset size threshold at which point it would become
subject to the requirements of Regulation YY, the EPS requirements of the Dodd-Frank Act, as mod-
ified by EGRRCPA in 2018, the Board’s tailoring rule, and related rulemakings in 2019.

71
SVBFG and SVB 2021 Supervisory Ratings letter, August 17, 2022.
72
SVB 2018 CAMELS Examination Report, March 6, 2019; See Board of Governors of the Federal Reserve System,
“Supervisory Guidance for Assessing Risk Management at Supervised Institutions with Total Consolidated Assets
Less than $100 Billion,” SR letter 16-11 (June 8, 2016, revised February 17, 2021), https://www.federalreserve.gov/
supervisionreg/srletters/sr1611.htm.
73
SVB 2019 CAMELS Examination Report, April 13, 2020.
74
SVB 2020 CAMELS Examination Report, May 3, 2021.
Supervision of SVBFG by Critical Risk Areas 47

The “Management” section of the letter highlights several significant concerns that could have
led to a consideration of downgrading the Management rating to “Less-than-Satisfactory-3.” First,
the letter contains two MRAs regarding credit risk management and internal loan review. The
nature of the findings is foundational with respect to credit risk management for a firm of SVB’s
size. Second, the letter highlights that management continued to struggle in addressing the firm’s
technology weaknesses. Finally, the Management rating commentary states “Management has
been reactive as opposed to proactive in certain risk identification aspects but has demonstrated
the ability and the willingness to address supervisory matters. An independent and effective LOD
[line of defense] framework is fundamental to the Board and management’s ability to plan for and
respond to risks arising from changing business conditions, new activities, accelerated growth,
and increasing complexity.”75

These issues indicate that risk management was lacking in important and fundamental ways
and, therefore, are a cause for more than normal supervisory attention. Further, management
was not identifying issues. They were reacting to supervisors identifying the issues. Under the
applicable ratings definition, the ratings for Risk Management and Management could have been
downgraded to a “Less-than-Satisfactory-3.” Instead, supervisors maintained the “Satisfactory-2”
rating given the strong financial performance of the firm at the time and the lack of realized risk
outcomes from the risk-management weaknesses, a backward-looking perspective. A downgrade
could have been justified in light of the potential for negative outcomes from identified risk-man-
agement deficiencies.

LFBO Supervision of Governance and Risk Management

The Liquidity Target examination in late 2021 provided some of the earliest insight to the new
LFBO supervisory team that SVBFG’s risk-management practices had not kept pace with its
growth.76 Meetings with SVBFG management at the time supported this supervisory concern,
according to interviews with members of the supervisory team. These concerns surfaced
coincident with the timing of the annual ratings cycle, so the supervisory team considered the
possibility of a downgrade. As a result of discussions with the DST, LFBOMG, and Board staff in
November 2021, Board staff provided a waiver for issuing the 2021 rating to ensure sufficient
support was assembled for a downgrade in the Governance and Control rating.

The examination of SVBFG’s governance and risk management began in the first quarter of 2022
and culminated in three matters requiring immediate attention (MRIAs), which were communi-
cated on May 31, 2022 (table 7).77 The examination identified fundamental weaknesses in board

75
SVB 2020 CAMELS Examination Report, May 3, 2021.
76
SVBFG Liquidity Planning Target Supervisory letter, November 2, 2021.
77
SVBFG and SVB Governance and Risk Management Target Supervisory letter, May 31, 2022.
48 Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

Table 7. Synopsis of SVBFG supervisory findings from the May 2022 letter on the governance and
risk-management examination

Issue type Issue synopsis
MRIA Board effectiveness—The board’s oversight over the firm’s risk-management practices is not adequate and has contributed to an
ineffective risk-management program. The lack of an effective risk-management program increases the potential that emerging
risks may go undetected or root causes for internal controls deficiencies are not addressed.
MRIA Risk-management program—SVB’s existing risk-management program is not effective. The existing risk-management structure
and framework does not provide the firm with appropriate mechanisms to operate a fully integrated risk-management program
and impedes management’s ability to identify emerging risks and address root causes of internal control deficiencies.
MRIA Internal audit effectiveness—The internal audit (IA) department’s methodology and programs do not sufficiently challenge
management, provide the audit committee with sufficient and timely reporting, or ensure the timely analysis of critical
risk-management functions and the overall risk-management program. The deficiencies in IA’s processes and reporting
negatively affected its ability to provide timely, independent assurance that the firm’s risk management, governance, and
internal controls were operating effectively.

Source: Federal Reserve communications with SVBFG, May 31, 2022.

effectiveness, risk management, and internal audit—three areas critical to the safety and sound-
ness of financial institutions.

The MRIAs reflected that SVBFG did not have the risk management and control infrastructure
necessary for the safety and soundness of the institution and was falling short of the enhanced
expectations of the EPS. SVBFG was required to respond to the MRIAs within 90 days, with the
response to include gap assessments for risk management and internal audit to determine if
there were further issues supervisors did not identify. Given the severity of issues, supervisors
could have recommended an enforcement action that required compensating controls while the
firm remediated the supervisory findings. Compensating controls could have included measures
to constrain risk appetite, require additional reporting to the board of directors, or mandate the
engagement of a third party to conduct an independent review.

The board, management, and chief risk officer (CRO) all failed to

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