CeFPro Connect

A New Era in Risk Management: Lessons from SVB’s Collapse
The collapse of Silicon Valley Bank (SVB) highlights critical vulnerabilities in interest rate risk management, liquidity risk management, board governance, and regulatory supervision, offering essential lessons for the financial sector.
Jun 11, 2024
Emma Hagan
Emma Hagan, Chief Risk and Compliance Officer, Clearbank
A New Era in Risk Management: Lessons from SVB’s Collapse

  • SVB's collapse was primarily due to significant failures in interest rate risk management, including inadequate hedging against rising rates and lack of diversified funding sources.

  • Effective board governance and oversight are crucial, requiring proactive, informed, and deeply involved boards to ensure robust risk management strategies are implemented and adapted to a rapidly changing environment.

  • Regulatory supervision must evolve to address the complexities of modern financial institutions, focusing on interconnectedness and potential rapid contagion effects.

  • Diversification of deposits across different financial institutions is essential to mitigate risks, especially in a competitive, high-interest-rate environment.

  • The speed of SVB's collapse, driven by social media, underscores the need for financial institutions to be prepared for rapid shifts in market sentiment and accelerated bank runs.

  • Innovation in the financial sector introduces new risks, necessitating adaptable and innovative risk management frameworks that can support technological advancements safely.

  • Scenario planning and stress testing must account for rapid, social media-driven events, ensuring liquidity stress tests and recovery plans are robust enough to handle massive, rapid outflows.

  • The financial sector must adopt agile and innovative risk management approaches, bringing in the right expertise and shifting risk management mindsets to cope with fast-changing market conditions.

  • Learning from SVB’s failures in various risk management areas can better prepare financial institutions for future challenges and safeguard the evolving financial landscape.

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