Managing the balance of assets and liabilities carefully is the foundation of every sound financial institution. It’s why the old joke about banking was that it’s “as easy as 4-5-6”: pay 4% interest on deposits, charge 5% on loans, and be on the golf course by 6pm.

But in the real world, it’s often more complex than that. If you don’t hedge your balance sheet against swings in interest rates—both short- and long-term—disaster is only ever a few steps away.

That’s exactly what happened to Silicon Valley Bank. During the tech boom, SVB took in a flood of startup deposits—far more than its loan book could support. Instead of converting the accounts into value-added services, it invested the excess cash in long-term government bonds at low yields. When the Federal Reserve hiked interest rates, the value of those bonds plunged. Suddenly, the bank’s balance failed: massive unrealised losses, and depositors—most of them uninsured—rushed to pull their money.

How did this happen under modern banking regulation? Why did so many red flags—concentrated deposits, asset-liability mismatch, unhedged risk—go unaddressed? And why should the public once again be asked to foot the bill for a reckless business model?

Meanwhile, Greg Becker, SVB’s CEO, made nearly $10 million in total compensation in 2022—and reportedly sold $3.6 million in shares just days before the collapse.

“Gradually, then suddenly.” SVB’s position deteriorated over years, but the run and failure took just 48 hours: from a failed $2.5bn capital raise to a historic bank collapse and federal takeover.

But is it any wonder the golden rule is so often forgotten—when the costs of failure never seem to fall on those in charge?

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