Interest Rate Risk, Uninsured Deposits, and Run Dynamics: A Case Study of Silicon Valley Bank

This paper explored Silicon Valley Bank's failure as a system in which the interactions between interest rate risk, concentrated uninsured funding, and limited visibility of securities losses were all observed. It used public disclosures to build up the bank's market-value position and a stylized sequential-service model of depositor recovery. The $16.0 billion in reported equity is nearly completely offset by unrecognized losses of $15.1 billion, resulting in an estimated market-value equity of $0.9 billion, or approximately 0.55% of the uninsured deposits. The stylized model would have depleted this buffer at withdrawals of approximately 27% of uninsured deposits, which is near the percentage of withdrawals during March 9, 2023. The case hence shows in numerical terms the first-mover advantage as outlined by Diamond and Dybvig (1983) and solvency-run as outlined by Jiang et al. (2024). The implications for each of the stakeholder groups are then provided. Managers need to control and report on the value of equity and assess the sustainability of uninsured funding. Supervisors shall escalate on the basis of market-value capital, when compared to uninsured deposits. The amount deposited at a corporate level should be considered a credit exposure and analysts should use the simple screen below to public filings. The lessons continue to be pertinent, as evidenced by the continued large, unrealized securities losses as of 2024 (OFR, 2025). Limitations include the single case study design, assumptions about style and the use of consolidated, pre-tax data. Despite this, the overall trend studied is clear over all the discount rates considered: If capital measured at market value is very small in relation to uninsured funding, then confidence, not credit quality, may be the reason a bank lives or dies.

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