How US Bank Regulation Failed SVB and its Supervisors

The paper argues that Silicon Valley Bank's failure in 2023 could have been avoided if it had been subject to two global standards established by the Basel Committee on Banking Supervision. First, the interest-rate risk in the banking book (IRR-BB) standard, never fully implemented in the United States, would have identified the bank's extremely risky asset-liability management strategy and required remedial action 10 quarters before it failed. Second, the liquidity coverage ratio (LCR), from which U.S. regulators had exempted banks of SVB's size, would have required the bank to hold tens of billions of dollars more liquidity at least four quarters before it failed. The conclusion is that US bank regulation needs to include quantitative limits for more US banks—not just the most systemic US banks.