Lessons learned from the collapse of Silicon Valley Bank

April 10, 2023 by Upstart

The failure of Silicon Valley Bank (SVB) sent shockwaves throughout the financial world as the second largest bank failure in US history. Federal regulators took over the bank to ensure stability of financial systems and guarantee depositors their money. Following the collapse, Jeff Keltner, SVP of Business Development at Upstart, shares his thoughts on the potential cascading effects for the industry and lessons banks and credit unions can take away.

What are your key takeaways from the events surrounding Silicon Valley Bank this weekend?

“I think the first takeaway is that I’m impressed with the speed and scope of the federal government’s response. Stepping in to backstop all deposits (importantly not equity or bond holders) was critical to help stop this from becoming a broader run on other banks. That was an effective and speedy government intervention.”

What lessons should other banks take away from the challenges SVB faced?

“SVB really suffered from two distinct challenges. The first was a risk management failure in terms of the securities they were holding and the maturity and interest rate risk they represented. This was exacerbated by their being marked as hold-to-maturity and thus not marked to market. I think all institutions will be looking at their balance sheet and what sort of unrealized losses they might be forced to realize if they had a liquidity crunch.

The second issue was really the rapid withdrawal of deposits, to the tune of something like $40B+ in a day. It’s not totally clear what precipitated this, but the risk in the securities mentioned above along with poor communications and execution in the attempt to raise more equity dollars didn’t help. Here I think a key lesson is maintaining effective communications with customers. Having to say “remain calm” is likely to have the opposite effect.”