BOG-FRS - Public Release, April 2023

RESTRICTED – FR 

Federal Reserve Bank of San Francisco
 

Redacted

| 

Redacted

@sf.frb.org | 101 Market Street, San Francisco, CA 94105

RedactedRedacted

 & LFBO DEDICATED SUPERVISORY TEAM LEAD 

LARGE INSTITUTIONS SUPERVISION GROUP 

SUPERVISION + CREDIT 

November 2, 2021 

TRANSMIT BY SECURE EMAIL 

Mr. Greg Becker 

Chief Executive Officer 

c/o Regulatory Affairs 

SVB Financial Group 

3003 Tasman Drive 

Santa Clara, California 95054 

Dear Mr. Becker: 

The Federal Reserve Bank of San Francisco (FR) completed a Liquidity Target Examination of 

SVB Financial Group (SVBFG). The review started on August 16 and concluded on 

August 27. The review focused on liquidity risk management practices1 separate from SVBFG’s 

on-balance sheet liquidity positions. Examiners also engaged management regarding the 

build-out of the liquidity management program and the related project plans in process. This 

letter serves to formalize the supervisory findings and recommendations discussed with 

SVBFG management on October 22, 2021. 

Executive Summary 

The firm’s liquidity risk management practices are below supervisory expectations set forth in 

applicable guidance. The FR identified foundational shortcomings in three key areas: (1) 

internal liquidity stress testing (ILST), (2) the liquidity limits framework, and (3) the contingency 

funding plan (CFP). 

ILST: 

The scenario design elements in ILST do not adequately address both market and 

idiosyncratic risks. Additionally, the firm’s deposit segmentation does not have sufficient 

1 The examination used the following supervisory letter guidance in our assessment: SR 10-6, The Interagency Policy Statement on 

Funding and Liquidity Risk Management, SR 11-7, Guidance of Model Risk Management and SR 12-7, Guidance on Stress Testing 

for Banking Organizations with Total Consolidated Assets of More than $10 Billion. 

Unreserved Opportunity | Supervision + Credit 

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BOG-FRS - Public Release, April 2023

Federal Reserve Bank of San Francisco Restricted FR 

Mr. Greg Becker 

c/o Regulatory Affairs 

SVB Financial Group 

November 1, 2021 

granularity to differentiate client outflows during stress. MRA #1 and MRA #2 provide a more 


detailed description of the issue, risk and required actions associated with ILST shortcomings.
 

Limits:
 

The limits framework is inadequate because it does not address post stress limits and does not
 

reflect the interconnectedness of liquidity risk. Additionally, liquidity limits are infrequently 


and inadequately reviewed. Without sufficient review, the firm adopted a Global Funds
 

Banking limit as part of its Risk Appetite Statement. This limit is not well calibrated as reflected
 

by the mix of reliable and unreliable liquidity sources, and funded loans with unfunded 


contingent liabilities. MRA #3 provides a more detailed description of the issue, risk and 


required actions associated with the limits-related shortcomings.
 

CFP:
 

The CFP is outdated and is not linked to the liquidity risk framework. It is missing key elements,
 

such as quantitative projections and an evaluation of funding needs. Without these elements
 

and the linkage to the liquidity risk framework, management does not have an effective CFP 


to activate in stress. MRA #4 provides further details on the issue, risk, and required actions
 

associated with the CFP shortcomings. 


The shortcomings identified in the three foundational areas referenced will require
 

management to re-assess the Liquidity Risk Management Project Plan established to meet the 


Enhanced Prudential Standards (EPS). These shortcomings reflect a deficiency in the Project
 

Plan. MRIA #1 provides additional detail on the issue, risk and required actions associated 


with the Project Plan’s deficiency. 


The three foundational shortcomings also point to independent review functions that did not
 

provide effective oversight, review, and challenge. MRIA #2 provides more detail on the issue,
 

risk and required actions related to the independent review deficiencies identified through
 

this liquidity target exam.
 

Supervisory Findings2 

MRIA #1 – Enhanced Liquidity Risk Management Project Plan 

Issue: Management needs to enhance the Liquidity Risk Management project plan. The 

current project plan does not account for weaknesses identified from this Liquidity Target 

Exam. Several workstreams, such as CFP and Model Risk Management were de-prioritized 

2 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. 

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BOG-FRS - Public Release, April 2023

Federal Reserve Bank of San Francisco	 Restricted FR 

Mr. Greg Becker
 

c/o Regulatory Affairs
 

SVB Financial Group
 

November 2, 2021
 

but had weaknesses identified through this exam. As SVBFG enhances its internal liquidity 

stress testing process, the firm will need to re-prioritize control frameworks such as Model Risk 

Management. The firm will also need to ensure it has appropriate data sources, while 

remediating weaknesses related to the CFP. Finally, the governance and controls 

workstreams need to be clearly linked to liquidity risk management. This will likely require an 

accelerated effort, given the identified weaknesses in current liquidity risk management 

practices. 

Risk: The current project plan does not account for deficiencies identified during the FR’s 

Liquidity Target Exam. As a result, delays to key milestones could jeopardize overall project 

timelines and thereby the firm’s plans to implement sound liquidity risk management that 

meets supervisory expectations. 

Required Action: By December 31, 2021, SVB is required to enhance their project plan for 

liquidity risk management as follows: 

1.	 Update the project plan and the associated gap assessment to address applicable 

supervisory expectations and requirements, including those related to the findings 

cited in this supervisory letter. 

2.	 Ensure sufficient staffing and resources are allocated to execute the plan to meet 

established timelines. 

MRIA #2 – Oversight and Challenge 

Issue: SVBFG lacks effective independent review oversight and challenge of its liquidity risk 

management framework. With the significant recent deposit inflows, concentrated in 

uninsured deposits, SVBFG’s liquidity risk profile continues to evolve. The level of oversight by 

the independent review functions,

3 however, have not kept pace. FRM did not challenge the 

recently adopted Global Funds Banking limit, despite the calibration issues identified in this 

examination. FRM also did not challenge the first line’s progress related to differentiating 

operational versus non-operational deposits despite the firm quickly approaching the point 

where it will be subject to the supervisory liquidity coverage ratio. MRM did not challenge the 

use of capital stress testing model scenarios for the ILST model despite the different time 

horizons and model purposes. IA has not subjected the CFP to review since 2019 despite the 

changes in SVBFG’s liquidity risk profile. The independent risk functions are intended to serve 

as a check on the first line’s liquidity risk management. The examples noted above do not 

reflect favorably on the oversight provided by the independent review functions. 

Risk: Weak oversight and ineffective review and challenge resulted in undetected 

shortcomings in SVBFG’s ILST, the limits framework and CFP. A credible ILST, limits framework 

and CFP are key elements contributing to the firm’s longer term financial resiliency. 

Required Action: By March 31, 2022, SVBFG is required to immediately establish an effective 

process for reviewing and challenging liquidity risk management practices. The firm should 

3 Second line independent review represented buy Financial Risk Management (FRM) and Model Risk Management (MRM); and 

third line independent review represented by Internal Audit (IA) 

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BOG-FRS - Public Release, April 2023

Federal Reserve Bank of San Francisco	 Restricted FR 

Mr. Greg Becker
 

c/o Regulatory Affairs
 

SVB Financial Group
 

November 1, 2021
 

be able to provide descriptions of challenges, management’s responses, or the basis for 

concurrence with the business risk owner. Key issues arising from review and challenge 

should be documented, at a minimum, with description of issue, issue owner, corrective 

actions and stated timeline for remediation and escalated to the appropriate committee(s) for 

oversight. The required actions should be mapped to the firm’s enhanced project plan. 

MRA #1 – Internal Liquidity Stress Testing Design 

Issue: The combined scenario in the current version of the firm’s ILST is based on historical 

simulation; but does not reflect a forward-looking assessment of the firm’s risks. It combines 

data from capital stress testing and internal historical data that has been supplemented with 

high-level external data. Examiners have noted several weaknesses in the firm’s approach, 

including: 

 Key assumptions rely on incomparable peer benchmarks. SVBFG’s historical analysis 

was based off other banks largely with a retail deposit base subject to FDIC insurance 

coverage, while SVBFG’s deposit base is largely commercial deposits without FDIC 

insurance coverage. 

 The scenario design contains assumptions tailored to capital stress testing rather than 

the more immediate impact of a liquidity stress. 

Risk: The current stress scenario does not sufficiently stress SVBFG’s liquidity exposures. 

Without sufficiently designed assumptions and scenarios, the firm’s liquidity buffer under 

stress may be insufficient. 

Required Action: By June 30, 2022, SVBFG is required to enhance its ILST scenario design. The 

scenario should address both market- and idiosyncratic-based risks. The velocity and 

severity of stress factors in the scenario should be appropriate for analyzing stress over the 

shorter time horizons of a defined liquidity event. The scenario itself should be subject to 

review and challenge by an independent function. The required actions should be mapped to 

the firm’s enhanced project plan. 

MRA #2 – Deposit Segmentation 

Issue: The firm’s ILST deposit segmentation is primarily focused on business lines, and does not 

delineate between product type, operational/non-operational deposit classification, or 

customer type. The insufficient segmentation results in all deposits being assumed to behave 

similarly in stress. During the exam, management acknowledged the outflows of its 

commercial deposits would vary in stress. While management has plans to enhance deposit 

segmentation, the specific methodology, project plan and supporting examples were not 

available during the exam. 

Risk: Without sufficient deposit segmentation, the firm is unable to appropriately differentiate 

deposit behaviors through outflow assumptions. Assuming all deposits to behave similarly is 

unrealistic and potentially understates outflows under stress. The shortcomings in the firm’s 

deposit segmentation negatively impact the reliability of liquidity buffer SVBFG has 

established. 

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BOG-FRS - Public Release, April 2023

Federal Reserve Bank of San Francisco Restricted FR 

Mr. Greg Becker
 

c/o Regulatory Affairs
 

SVB Financial Group
 

November 2, 2021
 

Required Action: By June 30, 2022, SVBFG is required to enhance deposit segmentation to 

reflect the risks associated with their deposits. This includes stability characteristics such as 

operational versus non-operational deposits, product type, counterparty type, and other 

relevant elements identified through the firm’s liquidity risk framework. The required actions 

should be mapped to the firm’s enhanced project plan. 

MRA #3 – Liquidity Limits Framework 

Issue: The firm lacks several components of an adequate liquidity limits framework. The firm 

has not demonstrated effective liquidity risk identification, measurement and monitoring 

systems and processes commensurate with the complexity and business activities of the 

institution. In its current state, SVBFG’s liquidity limit framework is a mix of static metrics that 

neither reflect the interconnectedness of the firm’s liquidity risks, nor account for liquidity 

stress testing outcomes. SVBFG also lacks meaningful limits for primary sources of liquidity 

risk, including funding concentrations and off-balance sheet exposures, such as those that 

come from committed and uncommitted loan facilities. Finally, limits within lines of business 

and legal entities are not clearly linked to the firm’s liquidity risk appetite. 

Risk: The firm’s current limit framework is inadequate for the purpose of measuring, 

monitoring, and controlling risks. These inadequacies may underestimate the demands on 

available liquidity sources in stress. 

Required Action: By June 30, 2022, SVB is required to develop a comprehensive liquidity limit 

and monitoring framework commensurate with the liquidity risk profile of the institution. The 

limit structure should reflect the company's risk profile, size, complexity, and activities. The 

limit structure should also consider liquidity stress testing outcomes, funding concentrations, 

and off-balance sheet exposures. The required actions should be mapped to the firm’s 

enhanced project plan. 

MRA #4 – Contingency Funding Plan 

Issue: The firm’s CFP has several deficiencies. First, it does not include a quantitative 

evaluation of expected funding needs and funding capacity during a stress event. It lacks a 

realistic assessment of how funds providers would behave under stress. For example, Fed 

Funds borrowing lines are listed as still available under “Severe” stress events. Second, the 

firm identifies the types of contingent funding by source but does not identify available 

amount based on active contracts or internal firm limits. For example, when compared with 

the firm’s ILST, the CFP assumes far more repo funding capacity than is currently available 

through master repurchase agreements. Additionally, several listed funding sources such as 

brokered CDs and discount window access have not been tested. Finally, the firm’s Early 

Warning Indicators (EWIs) are not tailored to its liquidity risk profile. SVBFG’s EWIs do not 

address off-balance sheet items despite the firm’s $36 billion of unfunded loan commitments. 

SVBFG’s EWIs do not have any specific metrics oriented towards private equity and venture 

capital despite the firm’s business model centered on these types of clients. Within a 

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BOG-FRS - Public Release, April 2023

Federal Reserve Bank of San Francisco	 Restricted FR 

Mr. Greg Becker
 

c/o Regulatory Affairs
 

SVB Financial Group
 

November 1, 2021
 

contingency planning context, SVBFG uses credit related metrics only in its Capital 

Contingency Plan but not in its Contingent Funding Plan. 

Risk: An ineffective CFP negatively affects management’s ability to assess whether the firm is 

under liquidity stress, what funding is available in varying levels of stress, and its ability to 

respond quickly to a real stress event. 

Required Action: By June 30, 2022, SVBFG is required to: 

 Include quantitative projection and evaluation of expected funding needs and funding 

capacity under stress. This analysis must address the potential erosion in funding at 

alternative stages or severity levels of the stress event and identify the potential cash 

flow mismatches that may occur during the various stress levels. 

 Accurately identify and test alternative sources of liquidity to ensure access to 

contingent funding sources, including availability according to firm limits or restrictions. 

 Enhance the CFP by tailoring EWIs to its specific risk profile. Additionally, management 

is required to establish a discrete linkage between its EWIs and activating the CFP. 

 The required actions should be mapped to the firm’s enhanced project plan. 

Closing 

After reviewing this supervisory letter4

, and within 30 days of its receipt, management is 

required to submit in writing remedial actions the firm will take to address the supervisory 

findings described above. 

The actions should include Internal Audit validation within the specified remediation timelines. 

Please send all supervisory correspondence from your institution in electronic format only 

copying our centralized mailbox as a recipient at 

Redacted

@sf.frb.org. 

Please note that this letter contains confidential material and should be treated accordingly 

by your organization.5 As such, the contents of this letter are subject to the rules of the Board 

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

appeals process as described in Internal Appeals Process for Material Supervisory Determinations and Policy Statement 

Regarding the Ombudsman for the Federal Reserve System, 85 Fed. Reg. 15175 (March 17, 2020). An appeal under this process 

may be made of any written material supervisory determination, as defined in the policy statement. The Board’s Ombudsman 

(Ombudsman) can provide assistance regarding questions related to the System’s material supervisory determination appeals 

process and claims of retaliation. The Ombudsman can also provide assistance to facilitate the informal resolution of concerns 

prior to the filing of a formal appeal. An institution may contact the Ombudsman at any time by calling 1-800-337-0429, by 

sending a facsimile to 202-530-6208, by writing to the Office of the Ombudsman, Board of Governors of the Federal Reserve 

System, Washington, D.C. 20551, or by sending an e-mail to ombudsman@frb.gov. 5 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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BOG-FRS - Public Release, April 2023

Federal Reserve Bank of San Francisco	 Restricted FR 

Mr. Greg Becker
 

c/o Regulatory Affairs
 

SVB Financial Group
 

November 2, 2021
 

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

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

free to contact me at 

Redacted

or 

Redacted

@sf.frb.org. Please send all supervisory 

correspondence from your institution in electronic format only, copying our centralized 

mailbox as a recipient at	 

Redacted

@sf.frb.org. 

Sincerely,

Redacted

Redacted Redacted

 LFBO Dedicated Supervisory Team Lead 

, CA DFPI 

- Complex Institution Supervision & Resolution, FDIC 

cc:	 Daniel Beck, Chief Financial Officer 

Laura Izurieta, Chief Risk Officer 

John Peters, Chief Auditor 

Redacted Redacted

Ben Jones, Head of Regulatory Affairs 

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