BPI Statement on SVB and Signature Bank

Washington, D.C. — Some major events have occurred in banking over the last few days.  It is a good rule of thumb that the speed and certitude with which anyone opines on a problem of this complexity is inversely proportional to the seriousness with which that opinion should be taken.  So, below are only initial and partial thoughts on a diagnosis, with a prescription still to come.

At this point, the failures of SVB and Signature Bank appear to reflect primarily a failure of management and supervision rather than regulation.    

  • Both banks grew rapidly and invested a significant portion of their assets in long-term government securities, which left them heavily exposed to interest rate risk.  Federal Reserve rate increases triggered large unrealized losses, which in turn undermined confidence in the banks.  Then, because an unusually (to put it mildly) large portion of their deposits were uninsured, a run by those depositors caused each bank’s failure.  At SVB, panic was exacerbated by the fact that many companies that were lending customers of the bank had been required to hold all their deposits there, and so were at mortal risk in the event that the bank failed.
  • Those problems reflected the idiosyncratic business models of both banks, which were concentrated in serving the tech, venture capital and crypto sectors and were extraordinarily reliant on uninsured deposits for funding.  Neither was a typical commercial or retail bank.
  • The weaknesses at both banks – management of interest rate risk and asset-liability management – are traditionally a key focus of bank management and examination.  Unlike credit risk and liquidity risk, interest rate risk is not susceptible to being reduced to a formula; it is more art than science.  For that reason, it has always been a core function of corporate CFOs and treasurers and of bank examiners, and not subject to prescribed regulatory formulas. 
  • The best way to ascertain interest rate risk is by stress testing the book in a variety of interest rate scenarios – including quantitative tightening of the type recently produced by the Federal Reserve.  We do not yet know how those tests were conducted at SVB or Signature, or how examiners at the Federal Reserve, FDIC and relevant state supervisors oversaw that process.  That said, it is difficult to imagine how the results of those tests could have produced anything but alarm. 
  • Presumably, further light will be shed on the effectiveness of supervision in these cases by the FDIC’s Inspector General when it publishes its failed-bank review on SVB and Signature, as required by law.

Regulatory tailoring under S. 2155 does not appear to have been a major factor in SVB’s or Signature Bank’s failure.  

  • As an initial matter, and as noted, interest rate risk management is generally addressed through supervision and not regulation, and thus was unaffected by regulatory tailoring under S. 2155.
  • To the extent that these banks’ failure reflected liquidity weaknesses, the liquidity coverage ratio – the liquidity rule that was eliminated for most bank holding companies with less than $250 billion in assets after S. 2155 – likely would not have prevented either bank’s problems, and might have made them worse.  Although the LCR does require banks to hold a large pool of “high-quality liquid assets,” it strongly encourages banks to hold primarily government securities for that purpose – precisely the securities that SVB and Signature held, exposing them to losses when the Fed raised rates. 
  • At the same time, regulatory tailoring under S. 2155 actually left in place other enhanced prudential standards – internal liquidity stress testing requirements – for bank holding companies like SVB that have $100 to $250 billion in assets.  These standards result in largely the same liquidity buffer requirements as the LCR, because examiners require ILST assumptions to be at least as conservative as LCR assumptions.  If those tools were not effectively applied, the failure was one of supervision, not regulation. 

The resolution process for both banks seems to deserve scrutiny.

  • As of this writing, it remains unclear exactly how the FDIC’s receivership process unfolded over the past few days, and a careful post-mortem would serve us well. 
  • In terms of results, it is particularly unclear why a buyer for all or any part of the banks could not be found – even as the Bank of England successfully orchestrated a sale of SVB’s U.K. subsidiary.  Congress and the FDIC’s Inspector General will eventually review what happened, and the results should inform any policy conclusions.

There appear to be some lessons for Basel implementation.

One notable feature of the last few days has been that the largest banks have proved to be resilient under stress, attracting deposit inflows rather than outflows.  So, once again, they have passed a real-world stress test in addition to their annual Federal Reserve stress tests.  The case for using academic studies to declare that they are undercapitalized appears to be growing increasingly untenable. 


We have a lot to learn about what just happened, and those lessons will be complicated, require careful thought and take a lot of study – including a review of how capital, liquidity and other rules intersected in practice.  Beware of those who find them simple and skip the “study” part.


About Bank Policy Institute.

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

Media Contact

Sean Oblack


Media Inquiry

  • This field is for validation purposes and should be left unchanged.