The bank's focus was predominantly on the short-term NII metric, while largely ignoring the EVE metric, which would have provided insights into the longer-term effects of interest rate changes on the bank's financial health. This one-sided focus led to significant mismanagement of interest rate risks, as it failed to account for longer-term impacts and idiosyncratic risks specific to SVBFG.

A is incorrect because SVBFG did not maintain a balanced focus on both NII and EVE metrics. The bank primarily concentrated on the NII metric, neglecting the critical insights that could be gained from the EVE metric.

C is incorrect as it suggests that SVBFG’s interest rate risk policy was robust and effective. In reality, the policy had many weaknesses, including a lack of specific scenarios for risk management and inadequate guidelines for analyzing assumptions and conducting sensitivity analysis.

D is incorrect because it inaccurately portrays SVBFG’s reliance on the EVE metric. The bank’s focus was actually skewed towards the NII metric, with insufficient attention given to the EVE metric and its implications for long-term financial stability.

Things to Remember

• Net Interest Income (NII) and Economic Value of Equity (EVE) are two key metrics used in interest rate risk management.
• NII focuses on the short-term impacts of interest rate changes on a bank’s earnings.
• EVE provides insights into the longer-term effects of interest rate changes on a bank’s financial health.
• Interest rate risk policies should include robust scenario analysis, assumption testing, and sensitivity analysis.