GIK Institute of Engineering Sciences and

Technology Swabi, KPK

Financial Risk Management Time: 1 Hour
Assign 01, Date: Marks: 20
Name: Usaeed Ullah
Reg no: 2020504
Case: Silicon Valley Bank: The Role Of Risk (Mis)Management

Question 01:
Over the last years, how did SVB’s business model evolve? What were its growth
strategies? How did SVB’s balance sheet evolve? What are effects on its profitability?
Ans: Evolution of SVB’s Business Model, Growth Strategies, and Balance Sheet

Evolution of SVB’s Business Model

Over the last several years, Silicon Valley Bank (SVB) evolved significantly. Initially, SVB's
business model was largely traditional, focusing on providing banking services to startups and
technology companies, a niche market. However, over time, SVB expanded its focus to include
more diversified financial services, such as investment banking, private banking, and wealth
management.
Growth Strategies
1. Niche Market Focus: SVB strategically targeted startups, venture capital, and private
equity firms, becoming a key player in the tech and innovation sector.
2. Geographic Expansion: SVB expanded its footprint both domestically and internationally
to capitalize on emerging tech hubs globally.
3. Product Diversification: The bank expanded its product offerings to include tailored
financial services for its client base, including credit facilities, treasury and cash
management, foreign exchange, and investment services.
4. Acquisitions and Partnerships: SVB pursued strategic acquisitions and partnerships to
enhance its service capabilities and market reach.
Evolution of SVB’s Balance Sheet
1. Asset Growth: SVB's total assets grew substantially, from $3.950 billion in 2001 to
$208.581 billion in 2021 (Exhibit 2). This growth was driven by an increase in cash
holdings, loans, and investments in securities.

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 2. Investment in Securities: The bank's investment in Held-to-Maturity (HTM) and
Available-for-Sale (AFS) securities grew markedly, particularly post-2014. By 2021,
HTM securities stood at $98.195 billion, and AFS securities at $27.093 billion (Exhibit
5).
3. Deposit Growth: SVB saw a significant increase in deposits, especially in larger
accounts. Total deposits grew from $4.078 billion in 2006 to $175.314 billion in 2021,
with a notable spike in deposits over $250,000 (Exhibit 4).
Effects on Profitability
1. Interest Income and Expenses: SVB's total interest income increased from $0.296 billion
in 2001 to $3.288 billion in 2021, while interest expenses remained relatively low,
leading to a high net interest margin (Exhibit 2).
2. Loan Losses: While loan losses fluctuated, they generally remained a small fraction of
the bank’s total assets. However, significant spikes occurred during economic downturns,
such as in 2009 and 2021 (Exhibit 3).
3. Profitability Metrics: SVB’s profitability was bolstered by its ability to manage low
interest expenses while increasing its interest income and maintaining a strong asset base,
despite occasional rises in loan losses and market volatility affecting securities’ fair value
(Exhibit 6).

Question 02:
What is the role of different stakeholders in the risk management of bank?
Ans: Role of Different Stakeholders in the Risk Management of a Bank

Effective risk management in a bank involves multiple stakeholders, each with distinct
roles and responsibilities:
1. Board of Directors:
 Governance and Oversight: The Board provides overall risk governance and sets
the risk appetite of the bank.
 Policy Approval: It approves risk management policies and ensures their
alignment with the bank’s strategic objectives.
2. Executive Management:
 Implementation: Executive management implements the risk management
framework and policies approved by the Board.

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  Risk Culture: It fosters a risk-aware culture throughout the organization.
3. Risk Management Department:
 Risk Identification and Assessment: This department is responsible for
identifying, assessing, and monitoring risks across the bank.
 Risk Mitigation: It develops and implements strategies to mitigate identified risks.
4. Internal Audit:
 Independent Review: Internal audit provides independent assurance on the
effectiveness of the risk management processes and controls.
 Compliance Checks: It ensures adherence to regulatory requirements and internal
policies.
5. Compliance Department:
 Regulatory Compliance: Ensures the bank complies with all relevant laws,
regulations, and internal policies.
 Reporting: Manages regulatory reporting and communication with regulatory
bodies.
6. Business Units:
 First Line of Defense: Business units are responsible for managing risks within
their operations, ensuring compliance with risk policies, and reporting any issues
to the risk management department.
7. Shareholders:
 Capital Provision: Shareholders provide the necessary capital for the bank’s
operations and growth.
 Oversight: They hold the Board and management accountable for risk
management practices through their voting rights and engagement in Annual
General Meetings (AGMs).
8. Regulators:
 Regulatory Oversight: Regulators establish the regulatory framework within
which banks operate, conduct supervision, and enforce compliance.
 Stress Testing and Audits: Regulators conduct stress tests and audits to ensure the
bank’s resilience to adverse economic conditions.
9. External Auditors:
 Independent Assurance: External auditors provide independent assurance on the
financial statements and effectiveness of internal controls.

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  Risk Assessment: They assess the bank’s risk management practices as part of
their audit processes.
10. Customers and Clients:
 Market Discipline: Customers and clients influence the bank’s risk management
through their preferences and choices, pushing banks towards sound practices.
Each stakeholder plays a critical role in ensuring the bank operates within its risk appetite and
regulatory framework, thereby contributing to the overall stability and sustainability of the
banking institution.