## INTRODUCTION

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### Abstract and context
- In March 2023, the US banking sector turmoil saw the rapid collapse of Silicon Valley Bank (SVB), the 16th largest bank in the country, followed by Signature Bank (SBNY) and First Republic Bank (FRB), the largest bank failures after Washington Mutual Bank in 2008.
- Triggers and amplifiers:
  - sizable deposit outflows,
  - large amounts of uninsured deposits,
  - substantial unrealized losses,
  - commercial real estate (CRE) exposures,
  - interaction of tighter monetary and financial conditions with ineffective interest, liquidity, and credit risk management at some banks.
- Monetary tightening:
  - Between March 2022 and September 2023, the Federal Reserve increased the effective federal funds rate by 525 basis points.
  - After years of very low interest rates, banks held longer-duration securities; rising policy rates increased interest rate risk, financing costs, and unrealized losses on HTM and AFS portfolios.
  - Technological advances (mobile banking, rapid electronic information dissemination) likely contributed to the speed of deposit runs in March 2023.

### Policy response and stabilization measures
- Emergency actions taken by US authorities:
  - Guaranteed all SVB and SBNY uninsured deposits using the “systemic risk exception.”
  - Federal Reserve created the Bank Term Funding Program (BTFP):
    - Loans longer dated than discount window operations, extendable up to one year at an interest rate equal to the overnight index swap rate plus 10 basis points (fixed for the life of the advance).
    - Allowed financing of securities at par to avoid selling at market discounts.
    - Banks borrowed $12 billion on March 15, 2023.
    - Borrowing increased to $165 billion as of February 20, 2024.
    - On January 24, the Federal Reserve announced a floor on the rate for new borrowings such that the rate on new BTFP loans equals the rate paid on reserves.
    - The program will terminate in March 2024; no new loans will be accepted after termination, but banks can repay loans until the end of their initial term.
  - The FDIC made uninsured depositors of SVB and SBNY whole based on the systemic risk exception.
- Outcome:
  - Forceful response and liquidity provision avoided broader contagion and market dysfunction.

### Financial markets impact and forward-looking assessment
- Market reactions in March 2023:
  - Sharp declines in stock prices of small and regional banks.
  - Marked increase in market volatility.
  - Tightening of short-term funding markets and flight to quality in sovereign bonds.
  - Unprecedented repricing of market rate expectations.
- Deposit and bank-size heterogeneity:
  - Regional banks defined as assets between $10 billion and $100 billion; large banks as above $100 billion; small banks as below $10 billion.
  - In Q1 2020, deposits recorded the largest quarterly growth since the early 1980s.
  - By end-2021, deposits reached $18.9 trillion and were 39 percent above pre-pandemic levels.
  - Deposits stabilized at $18.6 trillion in Q2 2023 as small and regional banks increased deposits.
  - Deposits stood at $18.7 trillion in Q4 2023, up 1 percent from Q2 2023.
  - About 11 percent of the total number of banks in the sample experienced uninsured deposit outflows greater than 5 percent of total deposits in Q1 2023.
  - Banks above $250 billion experienced deposit inflows in March 2023, suggesting reallocation of deposits from small banks to large banks during the stress period.
- Weak-tail bank attributes (as observed at SVB, SBNY, FRB):
  - sizable deposit outflows,
  - high concentrations of uninsured deposits,
  - increased reliance on borrowing and liquidity facilities,
  - substantial unrealized losses,
  - high exposure to CRE.
- Identified concerns:
  - A group of small and regional banks with sizable uninsured deposits to total deposits, sizable unrealized losses, high concentration to CRE, and increased reliance on borrowings after the March 2023 stress.

*Source: IMF staff estimates and analysis from "The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath" (sections 2–5).*

### 2.    Increased reliance on other sources of borrowing

### Shift to alternative borrowings and liquidity facilities
- Banks increased reliance on FHLB advances, Federal Reserve discount window and emergency lending program, and brokered deposits as precautionary measures.
- First quarter of 2023 dynamics:
  - FHLB lending surged after SVB’s collapse, increasing significantly more for regional banks and large banks compared to small banks.
  - Non-FHLB borrowings increased as banks accessed the BTFP facility; non-FHLB borrowing increased more for regional banks than for small and large banks.
  - The median ratio of total borrowings (FHLB and non-FHLB borrowing) increased more for regional and large banks compared to small banks.
- Data coverage:
  - Panels 2 to 4 are based on 4,528, or 98 percent of, deposit-insured banks, accounting for 99.8 percent of total bank assets in the third quarter of 2023.
  - In panel 2, noncore funding includes other borrowed money FHLB and other borrowed money other.

### Unrealized losses from securities holdings
- Asset composition and valuation effects:
  - Banks increased holdings of longer-term securities, particularly RMBS, after a surge in liquidity from higher deposits during the pandemic.
  - The 30-year fixed rate national average increased 209 basis points from the first quarter of 2022 to the fourth quarter of 2023.
  - Unrealized losses from RMBS represented nearly two-thirds of total unrealized losses.
  - Unrealized losses remained elevated at $477 billion in the fourth quarter of 2023, even after a significant drop due to repricing of forward rates in December 2023.
  - HTM securities reported at amortized cost (unrealized losses not generally reflected in equity/regulatory capital) while AFS reported at fair market value (unrealized gains/losses reflected in equity/regulatory capital for some banks).
  - The median ratio of unrealized losses to Tier 1 capital is high, with large dispersions across banks.

### Commercial Real Estate (CRE) exposures and credit risk
- CRE concentration and distribution:
  - Small and regional banks hold about two thirds of the $3 trillion in CRE exposures in the US banking system.
  - High concentration defined as CRE exposure to Tier 1 capital plus the allowance for loan losses greater than 300 percent.
  - One-third of US banks, mostly small and regional banks, held exposures to CRE exceeding 300 percent of their capital plus the allowance for credit losses, representing 16 percent of total banking system assets.
  - Share of banks with high CRE concentration by bank size: regional banks >50 percent; small banks 32 percent; large banks 3 percent.
  - More than 100 banks (about 3 percent of banking system assets) have high CRE concentration, unrealized losses greater than 25 percent of Tier 1 capital, and uninsured deposits to total deposits greater than 25 percent.
- Asset quality and provisioning:
  - The nonperforming CRE loan rate doubled to 0.81 percent at end-2023 from 0.41 percent at end-2022.
  - Large banks reported a sharper increase (+153 basis points) in the nonperforming CRE loan rate compared to small banks (+44 basis points) and regional banks (+49 basis points).
  - Banks increased provisions for CRE non-performing loans, but at a slower pace than the rise in non-performing loans.
  - CRE coverage ratio (loan loss reserves to nonperforming loans) fell to 154 percent from 200 percent for the banking sector, with a more pronounced decrease for US global systemically important banks compared to other banks.
  - Coverage ratio remains relatively high, indicating anticipation of additional defaults.
  - Historical note: quarterly CRE nonperforming loans and losses did not peak until nine quarters after the start of the global financial crisis in mid-2007.

### Market-based assessment, KRIs, and tail risks
- Valuation and market signals:
  - Bank valuations remain at a discount compared with January 2023.
  - Average price-to-book values for the KBW Regional Bank Index have suffered due to uncertainty around medium-term business model prospects, potential heightened regulation, and increases in required capital.
  - Consensus forecasts for one-year forward return on equity have fallen below 9 percent.
  - KBW Regional Index comprises banks broadly between $10-$110 billion.
- Key Risk Indicators (KRI) monitoring:
  - A KRI methodology (capital, asset quality, earnings, liquidity, market metrics) was applied to approximately 200 publicly traded banks.
  - The number of US banks on the monitoring list remains elevated for 2024, though it has shrunk since the onset of the pandemic.
  - The cohort of weak banks has declined since September 2023, driven by stabilized deposit flows and strategic liquidity bolstering, but a sizable group still signals challenges across earnings, liquidity, and other KRIs.
  - The weak tail of banks assessed as of the fourth quarter 2023 collectively represents an estimated $5.5 trillion in total assets, constituting almost 23 percent of total banking assets.
  - Distribution densities for flagged banks show a fatter tail with more banks flagged in four and five KRI categories.

*Source: IMF staff estimates and analysis from "The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath" (sections 2–5).*

### Policy considerations and supervisory implications

### Supervisory lessons and institutional needs
- Identified supervisory shortcomings and needs:
  - Last year’s US bank failures exposed shortcomings that threatened banking soundness and global financial stability and highlighted the role of supervisors in curtailing “irresponsible and excessive risk taking.”
  - Supervisory deficiencies include gaps in tools, corrective and sanctioning powers, and the need for supervisors to require higher-than-minimum standards where risks demand it.
  - Supervisors should allocate adequate resources to smaller banks, ensure effective decision-making and escalation processes, and be equipped with adequate reserves of expertise.
  - Globally, more than half of jurisdictions do not have independent bank supervisors with a clear safety and soundness mandate, sound internal governance, or resources appropriate to responsibilities.
  - Institutional architecture must be supported by other policymakers, including parliaments, to achieve vigilant, independent, well resourced, and accountable supervisory bodies.

### Interest-rate risk, contagion, and liquidity support
- Policy takeaways:
  - Rapidly rising interest rates can interact with underlying vulnerabilities to produce systemic stress.
  - If financial stability is threatened, maintaining confidence is paramount; policymakers should act swiftly and provide liquidity support to prevent systemic events.
  - Bold and swift action by US authorities contained the immediate threat following March 2023 turmoil.

### US supervisory responses and focus areas
- Federal Reserve enhancements:
  - Improving supervision of liquidity and interest rate risks by conducting target reviews at banks exhibiting higher interest rate and liquidity risk profiles.
  - Monitoring for “potential credit deterioration” in CRE and consumer lending segments.
  - Monitoring CRE market risks (concentration risk, risk exposures, risk management) and emphasizing the importance of adequate capital buffers.

*Source: IMF staff estimates and analysis from "The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath" (sections 2–5).*

### Box 1: SVB — Business model, failure mechanics, and key statistics

### Business model, concentration, and risk profile
- SVB was positioned as the “go-to financial partner” for investors in the innovation ecosystem (start-ups and venture capital).
- Between 2016 and 2023, SVB nearly quadrupled in size:
  - Deposits in 2016: $40 billion.
  - Deposits in 2023: surpassing $175 billion.
- Client concentration:
  - Wholesale deposits with high sectoral and geographical concentration in Silicon Valley (northern California).
  - High degree of uninsured deposits: 86 percent of total deposits.

### Asset composition, stress mechanics, and timeline
- Asset mix and interest-rate exposure:
  - Heavy investment in long-term RMBS exposed to interest rate risk; unrealized losses expanded as rates rose.
- Failure timeline and mechanics:
  - End-2022 and early-2023: slowdown in technology-related activity increased deposit withdrawals and low venture capital activity froze funding inflows.
  - Early March 2023: a failed capital raise and balance sheet restructuring announcement triggered depositor concerns and a rapid bank run.
  - Reportedly $42 billion of deposits left the bank on March 9, 2023, with another $100 billion forecast to flow out the next day.
  - At end-2022, SVB’s unrealized losses were equivalent to 104 percent of Tier 1 capital.
  - Bank closure date: March 10, 2023.

### Supervisory and risk-management shortcomings
- Enhanced supervision and regulatory requirements for large banks did not apply to SVB or had only recently applied because of rapid growth.
- SVB’s access to the Federal Reserve’s discount window was not operationally active.
- Expansion of unrealized losses exposed weaknesses in risk management and leadership foresight.

### Key statistics (SVB)
- Deposits in 2016: $40 billion.
- Deposits in 2023: surpassing $175 billion.
- Share of uninsured deposits: 86 percent of total deposits.
- Reported deposit outflow on March 9, 2023: $42 billion.
- Forecast additional outflow next day: $100 billion.
- Unrealized losses at end-2022: equivalent to 104 percent of Tier 1 capital.
- Bank closure date: March 10, 2023.

*Source: IMF staff estimates and analysis from "The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath" (sections 2–5).*

### INTRODUCTION _________________________________________________________________________________ 7

### INTRODUCTION

### Abstract
- In March 2023, the US banking sector turmoil sent a shockwave through the global financial system. Silicon Valley Bank (SVB), the 16th largest bank in the country, collapsed in a matter of days, followed by Signature Bank (SBNY) and First Republic Bank (FRB), marking the largest bank failures after Washington Mutual Bank in 2008.
- The turmoil was triggered by sizable deposit outflows and raised concerns about banks with large amounts of uninsured deposits, unrealized losses, and commercial real estate (CRE) exposures.
- The episode highlighted challenges from the interaction between tighter monetary and financial conditions and vulnerabilities amplified by ineffective interest, liquidity, and credit risk management at some banks.
- The note analyzes attributes of the affected banks to assess the extent to which vulnerabilities persist in a weak tail of banks and provides a prospective medium-term assessment of risks to financial stability posed by this weak tail.

### Introduction — context and monetary tightening
- Between March 2022 and September 2023, the Federal Reserve increased the effective federal funds rate by 525 basis points—the fastest monetary tightening cycle since the 1980s, bringing the policy rate to levels not seen since before the global financial crisis.
- After years of very low interest rates, banks invested large deposit inflows in longer-duration securities, leading to increased interest rate risk as policy rates rose.
- As interest rates rose, banks faced:
  - increased financing costs,
  - declines in market value of securities holdings,
  - sharp increases in unrealized losses on HTM and AFS portfolios,
  - depositor moves into higher-return products (e.g., money market funds), accelerating deposit outflows.
- Technological advances (mobile banking, rapid electronic information dissemination) likely contributed to the speed of deposit runs observed in March 2023.
- SVB and SBNY failed within days, marking the second- and third-largest bank failures in US history at that time; subsequent failure of FRB further increased the ranking of these events.

### Policy response and stabilization measures
- US authorities enacted emergency actions to contain contagion, including:
  - Guaranteeing all SVB and SBNY uninsured deposits using the “systemic risk exception.”
  - The Federal Reserve created the Bank Term Funding Program (BTFP):
    - Provided loans longer dated than discount window operations, extendable up to one year at an interest rate equal to the overnight index swap rate plus 10 basis points (fixed for the life of the advance).
    - Allowed banks to finance securities at par to avoid selling at market discounts and crystallizing mark-to-market losses.
    - Banks borrowed $12 billion on March 15, 2023.
    - Borrowing increased to $165 billion as of February 20, 2024.
    - On January 24, the Federal Reserve announced a floor on the rate for new borrowings such that the rate on new BTFP loans equals the rate paid on reserves.
    - The program will terminate in March 2024, after which no new loans will be accepted, but banks can repay loans until the end of their initial term.
- The Federal Deposit Insurance Corporation made uninsured depositors of SVB and SBNY whole based on the systemic risk exception.
- Authorities’ forceful response and liquidity provision avoided broader contagion and market dysfunction.

### Financial markets impact — March 2023 turmoil
- The collapse of SVB triggered severe market reactions:
  - Sharp declines in stock prices of small and regional banks.
  - A marked increase in market volatility.
  - Tightening of short-term funding markets and a sudden flight to quality in sovereign bonds.
  - Unprecedented repricing of market rate expectations.
- While bank equity broadly recovered after March 2023 and aggregate deposit indicators improved, investor confidence remained uneven, particularly for regional banks (assets between $10 billion and $100 billion).
- A major US regional bank’s large announced losses tied to CRE exposure prompted a 10 percent decline in the corresponding index, highlighting persistent investor caution.

### Forward-looking assessment of the US banking sector
- The analysis applies the weak-tail bank profile (attributes that made certain banks vulnerable during March 2023) to the US banking system, noting heterogeneity across asset-size categories.
- Banks considered in classifications:
  - Regional banks: assets between $10 billion and $100 billion.
  - Large banks: assets above $100 billion.
  - Small banks: assets below $10 billion.
- Attributes that defined the weak tail of banks (observed at SVB, SBNY, FRB) include:
  - sizable deposit outflows,
  - high concentrations of uninsured deposits,
  - increased reliance on borrowing and liquidity facilities,
  - substantial unrealized losses,
  - high exposure to CRE.
- The note identifies a group of small and regional banks with:
  - sizable uninsured deposits to total deposits,
  - sizable unrealized losses,
  - high concentration to CRE,
  - increased reliance on borrowings after the March 2023 stress.

### Deposit flows — magnitudes and trends
- Deposit dynamics:
  - In Q1 2020, deposits recorded the largest quarterly growth since the early 1980s.
  - By the end of 2021, deposits reached $18.9 trillion and were 39 percent above pre-pandemic levels.
  - As interest rates increased, deposit costs rose slowly and deposits declined in 2022.
  - In Q1 2023, opportunity cost of holding deposits increased due to higher yields in money-market mutual funds, accelerating deposit outflows.
  - About 11 percent of the total number of banks in the sample experienced uninsured deposit outflows greater than 5 percent of total deposits in Q1 2023, with a larger number of regional banks reporting deposit outflows than other banks.
  - Banks above $250 billion experienced deposit inflows in March 2023, suggesting reallocation of deposits from small banks to large banks during the stress period.
- Rapid government intervention and funding facilities helped restore confidence:
  - Deposits stabilized at $18.6 trillion in Q2 2023 as small and regional banks increased deposits.
  - Deposits stood at $18.7 trillion in Q4 2023, up 1 percent from Q2 2023.

*International Monetary Fund — GLOBAL FINANCIAL STABILITY NOTES: The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath*

### 2.    Increased reliance on other sources of borrowing

### 2.    Increased reliance on other sources of borrowing

### Banks' shift to alternative borrowings
- Banks increased reliance on advances from the Federal Home Loan Banks (FHLB), credit from the Federal Reserve discount window and emergency lending program, and brokered deposits as precautionary measures to address investor concerns and safeguard liquidity.
- In the first quarter of 2023, FHLB lending surged after SVB’s collapse, increasing significantly more for regional banks and large banks compared to small banks.
- Non-FHLB borrowings also increased as banks accessed the BTFP facility, with non-FHLB borrowing increasing more for regional banks than for small and large banks, suggesting regional banks were potentially the main users of the BTFP program.
- The median ratio of total borrowings (FHLB and non-FHLB borrowing) increased more for regional and large banks compared to small banks.
- Data coverage and classification:
  - Panels 2 to 4 are based on 4,528, or 98 percent of, deposit-insured banks, accounting for 99.8 percent of total bank assets in the third quarter of 2023.
  - Following the Federal Reserve’s supervisory classification: small banks = less than $10 billion in total assets; regional banks = $10 billion to $100 billion; large banks = above $100 billion.
  - In panel 2, noncore funding includes other borrowed money FHLB and other borrowed money other.

### Unrealized losses from securities holdings
- Banks increased holdings of longer-term securities, particularly RMBS, following a surge in liquidity from higher deposits during the pandemic.
- Rising interest rates in 2022 and 2023 reduced market values of HTM and AFS securities, producing large unrealized losses; HTM reported at amortized cost (unrealized losses not generally reflected in equity/regulatory capital) while AFS reported at fair market value (unrealized gains/losses reflected in equity/regulatory capital for some banks).
- Key figures and dynamics:
  - Unrealized losses from RMBS represented nearly two-thirds of total unrealized losses.
  - The 30-year fixed rate national average increased 209 basis points from the first quarter of 2022 to the fourth quarter of 2023.
  - Unrealized losses remained elevated at $477 billion in the fourth quarter of 2023, even after a significant drop due to repricing of forward rates in December 2023.
  - The median ratio of unrealized losses to Tier 1 capital is high, with large dispersions across banks.

### Commercial Real Estate (CRE) exposures and credit risk
- CRE exposure concentration and trends:
  - Small and regional banks hold about two thirds of the $3 trillion in CRE exposures in the US banking system.
  - In January 2024, shifts in market expectations about interest rate cuts and substantial losses announced by a large bank heavily exposed to CRE prompted a 10 percent decline in that regional bank’s stock index.
- High CRE concentration definition and prevalence:
  - High concentration defined as CRE exposure to Tier 1 capital plus the allowance for loan losses greater than 300 percent.
  - One-third of US banks, mostly small and regional banks, held exposures to CRE exceeding 300 percent of their capital plus the allowance for credit losses, representing 16 percent of total banking system assets.
  - Share of banks with high CRE concentration by bank size: regional banks >50 percent; small banks 32 percent; large banks 3 percent.
  - More than 100 banks (about 3 percent of banking system assets) have high CRE concentration, unrealized losses greater than 25 percent of Tier 1 capital, and uninsured deposits to total deposits greater than 25 percent.
- Asset quality and provisioning:
  - The nonperforming CRE loan rate doubled to 0.81 percent at end-2023 from 0.41 percent at end-2022.
  - Large banks reported a sharper increase (+153 basis points) in the nonperforming CRE loan rate compared to small banks (+44 basis points) and regional banks (+49 basis points).
  - Banks increased provisions for CRE non-performing loans, but at a slower pace than the rise in non-performing loans.
  - CRE coverage ratio (loan loss reserves to nonperforming loans) fell to 154 percent from 200 percent for the banking sector, with a more pronounced decrease for US global systemically important banks compared to other banks.
  - Despite the decline, the coverage ratio remains relatively high, indicating anticipation of additional defaults.
  - Historical note: in the United States, quarterly CRE nonperforming loans and losses did not peak until nine quarters after the start of the global financial crisis in mid-2007.

### Market-based assessment and tail risks
- Bank valuations and outlook:
  - Bank valuations remain at a discount compared with January 2023.
  - Average price-to-book values for the KBW Regional Bank Index have suffered due to uncertainty around medium-term business model prospects, potential heightened regulation, and increases in required capital.
  - Consensus forecasts for one-year forward return on equity have fallen below 9 percent and are materially below peers.
  - KBW Regional Index currently comprises banks broadly between $10-$110 billion.
- Key risk indicators (KRIs) monitoring:
  - A KRI methodology (capital, asset quality, earnings, liquidity, market metrics) was applied to approximately 200 publicly traded banks to monitor forward-looking risks.
  - The number of US banks on the monitoring list remains elevated for 2024, though it has shrunk since the onset of the pandemic.
  - The cohort of weak banks has declined since September 2023, driven by stabilized deposit flows and strategic liquidity bolstering, but a sizable group still signals challenges across earnings, liquidity, and other KRIs.
  - The weak tail of banks assessed as of the fourth quarter 2023 collectively represents an estimated $5.5 trillion in total assets, constituting almost 23 percent of total banking assets.
  - Distribution densities for flagged banks show a fatter tail with more banks flagged in four and five KRI categories, making balance sheet and earnings differences more evident.

### Policy considerations and supervisory implications
- Lessons and supervisory needs:
  - Last year’s US bank failures exposed shortcomings that threatened banking soundness and global financial stability and highlighted the role of supervisors in curtailing “irresponsible and excessive risk taking.”
  - Supervisory deficiencies identified include gaps in tools, corrective and sanctioning powers, and the need for supervisors to require higher-than-minimum standards where risks demand it.
  - Supervisors should allocate adequate resources to smaller banks, ensure effective decision-making and escalation processes, and be equipped with adequate reserves of expertise.
  - Globally, more than half of jurisdictions do not have independent bank supervisors with a clear safety and soundness mandate, sound internal governance, or resources appropriate to responsibilities.
  - Institutional architecture must be supported by other policymakers, including parliaments, to achieve vigilant, independent, well resourced, and accountable supervisory bodies.
- Interest-rate risk, contagion, and liquidity support:
  - The turmoil illustrated how rapidly rising interest rates interact with underlying vulnerabilities and how a group of weak banks can prompt emergency action to limit contagion.
  - If financial stability is threatened, maintaining confidence is paramount; policymakers should act swiftly and provide liquidity support to prevent systemic events.
  - Bold and swift action by US authorities contained an immediate threat to financial stability following the March 2023 turmoil.
- US supervisory responses:
  - The Federal Reserve has strengthened supervisory efforts to address lessons from large bank failures and its supervision of SVB, including:
    - Improving supervision of liquidity and interest rate risks by conducting target reviews at banks exhibiting higher interest rate and liquidity risk profiles.
    - Monitoring for “potential credit deterioration” in CRE and consumer lending segments.
    - Monitoring CRE market risks (concentration risk, risk exposures, risk management) and emphasizing the importance of adequate capital buffers.

*Source: IMF staff estimates and analysis from "The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath" (sections 2–5).*

### Box 1: SVB: A Complex and Concentrated Business Model Tested by a Higher-for-Longer Interest

### Box 1: SVB: A Complex and Concentrated Business Model Tested by a Higher-for-Longer Interest Rate Environment

### Business model and client concentration
- SVB positioned itself as the “go-to financial partner” for investors in the innovation ecosystem (start-ups and venture capital).
- Between 2016 and 2023, SVB nearly quadrupled in size, with deposits surpassing $175 billion compared to $40 billion in 2016.
- The client base was especially homogenous: mainly wholesale deposits with high sectoral and geographical concentration in Silicon Valley (northern California).
- High degree of uninsured deposits: 86 percent of total deposits, increasing sensitivity to the same type of shock and to interest rate movements.

### Asset composition and interest-rate exposure
- Management invested heavily in long-term residential mortgage-backed securities (RMBS), which were highly exposed to interest rate risk.
- As interest rates rose, unrealized losses on securities expanded, creating balance-sheet pressure given the bank’s asset mix.

### Supervision, liquidity access, and risk management
- Enhanced supervision and regulatory requirements for large banks did not apply to SVB or had only recently applied because of its rapid growth.
- SVB’s access to the Federal Reserve’s discount window was not operationally active (Board of Governors of the Federal Reserve System 2023).
- The expansion of unrealized losses exposed weaknesses in risk management and leadership foresight that did not anticipate sudden liquidity stress.

### Timeline and mechanics of the failure
- During end-2022 and beginning-2023, a slowdown in technology-related activity increased deposit withdrawals and low venture capital activity froze funding inflows.
- As unrealized losses grew, SVB faced sudden liquidity risk.
- In early March 2023, a plan to raise capital as part of a balance sheet restructuring plan failed; the announcement triggered depositor concerns and a rapid bank run.
- Reportedly $42 billion of deposits left the bank on March 9, with another $100 billion forecast to flow out the next day, marking the fastest and largest deposit run this century.
- Prior to failure, at end of 2022, SVB’s unrealized losses were equivalent to 104 percent of Tier 1 capital.
- The bank was closed on March 10 by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (FDIC) was appointed receiver (Federal Deposit Insurance Corporation 2023a).

### Key statistics
- Deposits in 2016: $40 billion.
- Deposits in 2023: surpassing $175 billion.
- Share of uninsured deposits: 86 percent of total deposits.
- Reported deposit outflow on March 9, 2023: $42 billion.
- Forecast additional outflow next day: $100 billion.
- Unrealized losses at end-2022: equivalent to 104 percent of Tier 1 capital.
- Bank closure date: March 10, 2023.

*GLOBAL FINANCIAL STABILITY NOTES — The US Banking Sector since the March 2023 Turmoil: Navigating the Aftermath. INTERNATIONAL MONETARY FUND*

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_Source: https://www.imf.org/-/media/files/publications/gfs-notes/2024/english/gfsnea2024001.pdf_