Did the rapid growth of SVB Bank contribute to its failure? Yes, it did. As the bank expanded its operations and became more complex, the board and management failed to effectively manage the associated risks, such as liquidity and interest rate risk. Additionally, short-term profits were prioritized over effective risk management, which resulted in compensation packages that emphasized short-term earnings and equity returns rather than risk metrics.
Supervisors also did not fully understand the extent of the bank’s vulnerabilities, and when these issues were identified, sufficient steps were not taken to address them in a timely manner. Moreover, the concentration of uninsured deposit funding from the cyclical technology and venture capital sector added to the bank’s rapid failure.
It is a lesson for all companies that rapid growth must be accompanied by effective risk management strategies. As a business leader, it is important to prioritize the long-term health and stability of your organization over short-term gains.
Source: Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank
