Explanation:
SVB experienced rapid growth and had a concentrated business model, relying heavily on uninsured deposits from the technology and life sciences sectors. It invested these deposits in long-term maturities. When interest rates began to rise and the technology sector slowed down in 2022 and 2023, SVB faced significant challenges, including deposit outflows and unrealized losses on its securities, leading to its eventual failure.
A is incorrect because SVB actually invested heavily in longer-term securities, not short-term, low-risk ones. These long-term investments became problematic as they incurred unrealized losses when interest rates rose.
B is incorrect as there is no evidence SVB's failure was due to diversification into international markets or exposure to geopolitical risks. The primary issues leading to SVB's failure were related to its concentration in the technology and life sciences sectors, its investment strategies, and its risk management practices.
D is incorrect because SVB's failure was not due to a conservative approach to lending or low returns on investments during economic growth. In fact, the bank's rapid asset growth and significant investments in long-term securities during a period of low interest rates were key factors.
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Q.5554 Which of the following correctly describes a key factor leading to the failure of Silicon Valley Bank (SVB)?
A
SVB's prudent investment in short-term, low-risk securities which underperformed during the market downturn.
B
The bank's successful diversification into international markets, which exposed it to unforeseen geopolitical risks.
C
SVB's rapid growth, reliance on uninsured deposits, and investments in long-term securities, which became problematic when faced with rising interest rates and a slowdown in the technology sector.
D
The bank's conservative approach to lending, resulted in a lower-than-expected return on investments during a period of economic growth.