BOG-FRS - Public Release, April 2023

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CALIFORNIA DEPARTMENT OF FEDERAL RESERVE BANK OF 

FINANCIAL PROTECTION AND INNOVATION SAN FRANCISCO 

2101 ARENA BOULEVARD 101 MARKET STREET 

SACRAMENTO, CALIFORNIA 95834 SAN FRANCISCO, CALIFORNIA 94108 

(916) 576-4941 (415) 974-2000 

November 15, 2022 

Mr. Greg Becker 

Chief Executive Officer 

C/O Ben Jones, Head of Regulatory Affairs 

SVB Financial Group 

Silicon Valley Bank 

3003 Tasman Drive 

Santa Clara, California 95054 

Subject: 2022 CAMELS Exam 

Dear Mr. Becker: 

The Federal Reserve Bank of San Francisco (FRBSF) and the California Department of Financial 

Protection and Innovation (CDFPI) jointly completed the 2022 annual CAMELS examination at 

Silicon Valley Bank (SVB or the Firm). The 2022 CAMELS ratings will be formally conveyed in 

concert with the 2022 Large Financial Institutions (LFI) ratings in 1Q 2023. Going forward, the 

timing of CAMELS and LFI rollups will be aligned to reduce redundancy. This letter serves to 

communicate the change in timing of rating issuance and to formalize the supervisory findings 

discussed with management on November 14, 2022. 

Executive Summary 

Sensitivity to Market Risk 

The Firm's interest rate risk (IRR) simulations are not reliable and require improvements. SVB’s 

balance sheet had been modeled and reported as asset sensitive. While data from the first 3 

quarters of 2022 confirmed asset sensitivity and the firm benefiting from rising rates, 

management is forecasting meaningful Net Interest Margin (NIM) compression, Net Interest 

Income (NII) decline and significant adverse earnings impact starting in 4Q and into 2023. 

Changes in NIM, NII and earnings are directionally inconsistent with internal projections and 

IRR simulations, calling into question the reliability of IRR modeling and the effectiveness of risk 

management practices. Unreliable IRR modeling directly impairs management and the 

board’s ability to make sound asset liability management decisions. As such, a Matters 

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BOG-FRS - Public Release, April 2023

Requiring Attention1 (MRA) is identified to address this concern and is further detailed in the 

Appendix. 

Asset Quality 

As part of the exam scope, the examination team assessed the effectiveness of the internal 

loan review (ILR) function. ILR practices are consistent with supervisory expectations, with 

adequate support for concluded risk ratings and timely identification of policy exceptions. 

Examiners reviewed 93 relationships and 233 loans, with a focus on credits reviewed by ILR, as 

well as loans from the Investor Dependent portfolio, SVB Private Bank and Boston Private. Out 

of the 93 relationships reviewed, examiners considered one ILR conclusion incorrect. 

Additionally, the exam team assessed the Firm's remediation for two outstanding credit 

related MRAs. These MRAs are considered closed as follows: 

Outstanding MRAs Status 

FLOD/SLOD separation of duties MRA Closed 

Internal Loan Review MRA Closed 

Next Steps 

After reviewing this supervisory letter2, and within 45 calendar days of its receipt, 

management is required to submit a written response to the MRA contained herein. We 

appreciate the assistance received from your management team and staff throughout the 

year. As a reminder, this letter contains confidential material and should be treated 

1

 Matters Requiring Immediate Attention (MRIAs) arising from an examination, inspection, or any other supervisory activity are 

matters of significant importance and urgency that the FR requires organizations to address immediately and include: (1) matters 

that have the potential to pose significant risk to the organization's safety and soundness; (2) matters that represent significant 

noncompliance with applicable laws and regulations; (3) repeat criticisms that have escalated in importance due to insufficient 

attention or inaction by the organization; and (4) in the case of consumer compliance examinations, matters that have the 

potential to cause significant consumer harm. 

Matters Requiring Attention (MRAs) constitute matters that are important, and that the FR is expecting an organization to 

address over a reasonable period of time, but when the timing need not be "immediate" as the threat to safety and soundness is 

less immediate than with issues giving rise to MRIAs. An MRA typically will remain an open issue until resolution and confirmation 

by examiners that the banking organization has taken corrective action. If a banking organization does not adequately address 

an MRA in a timely manner, examiners may elevate an MRA to an MRIA. Similarly, a change in circumstances, environment, or 

strategy can also lead to an MRA becoming an MRIA. 

2

 Any institution about which the Federal Reserve makes a written material supervisory determination is eligible to utilize the 

appeals process as described in the Appeals Process and Board Ombudsman (Ombuds) Policy Statement (See also 85 Fed. Reg. 

15,175 (March 17, 2020)). The Ombuds can provide assistance regarding questions related to the appeals process and claims of 

retaliation as well as assist in facilitating the informal resolution of a supervised institution's concerns prior to the filing of a 

formal appeal. For more information about the Ombuds, please visit the Federal Reserve Board's public website. 
 

 

 

 

BOG-FRS - Public Release, April 2023

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accordingly by your organization.3 As such, the contents of this letter are subject to the rules of 

the Board of Governors of the Federal Reserve System regarding disclosure of confidential 

supervisory information as well as CA Financial Code 452. We welcome the opportunity to 

further discuss any aspect of this letter or our supervisory process with members of the board 

or management. Should you have any comments or questions regarding this letter, please 

directly contact at or , or 

with CDFPI at or . 

Redacted Redacted Redacted Redacted Redacted Redacted

Sincerely, 

, 

Redacted

Redacted Redacted Redacted Redacted

Department of Financial Protection and Innovation LFBO Dedicated Supervisory Team Lead 

Federal Reserve Bank of San Francisco 

By: 

Redacted Redacted Redacted

cc:	 Board of Directors 

Dan Beck, Chief Financial Officer 

John Peters, Chief Auditor 

Redacted

, FDIC 

3 THIS DOCUMENT IS STRICTLY CONFIDENTIAL: This document has been prepared by an examiner selected or approved by the 

Board of Governors of the Federal Reserve System. The document is the property of the Board of Governors and is furnished to 

directors and management for their confidential use. The document is strictly privileged and confidential under applicable law, 

and the Board of Governors has forbidden its disclosure in any manner without its permission, except in limited circumstances 

specified in the law (12 U.S.C 1817(a) and 1831m) and in the regulations of the Board of Governors (12 C.F.R. 261.20). Under no 

circumstances should the directors, officers, employees, trustees or independent auditors disclose or make public this document 

or any portion thereof except in accordance with applicable law and the regulations of the Board of Governors. Any 

unauthorized disclosure of the document may subject the person or persons disclosing or receiving such information to the 

penalties of Section 641 of the U.S. Criminal Code (18 U.S.C. 641). Each director or trustee, in keeping with his or her responsibilities, 

should become fully informed regarding the contents of this document. In making this review, it should be noted that this 

document is not an audit and should not be considered as such. 

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Appendix I: New Matters Requiring Attention (MRA) 

MRA: IRR Simulation and Modeling 

Issue: SVB’s IRR simulations are unreliable. The firm’s latest forecasts for 4Q 2022 and 2023 

show notable contractions in the net interest margin and net interest income as a result of 

current interest rate levels and other market conditions, leading to significant adverse impacts 

on earnings. Importantly, the forecasted changes are directionally inconsistent with dynamic 

IRR simulations and projections, which modeled and reported the balance sheet as asset 

sensitive. These inconsistencies call into question the reliability of the firm’s IRR modeling and 

the effectiveness of risk management practices. 

Impact: Unreliable IRR modeling outputs impair management and the board’s ability to make 

important asset liability management decisions. In the firm’s case, simulation results gave a 

false sense of safety in a rising rate environment and masked the need to take actions earlier 

in the rate cycle. 

Required Action: By June 30, 2023, the board and senior management is required to: 

•	 Backtest IRR simulations against actual results and compare against latest forecasts to 

determine driver(s) of inconsistency and reasonableness of assumptions 

•	 Correct deficiencies identified through the backtest 

•	 Perform an analysis of deposit mix shifts and run-offs across different rate and VC 

funding scenarios 

•	 Incorporate deposit mix shifts and run-offs into IRR simulations, either directly or as part 

of sensitivity analysis 

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