[Restricted FR]
 

REPORT OF
 

HOLDING COMPANY
 

INSPECTION
 

HC Name: SVB Financial Group 

Location: Santa Clara, California 

RSSD Number: 1031449 

Inspection Commenced: December 30, 2019 

Inspection Concluded: January 17, 2020 

Financial Data as of: September 30, 2019 

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 1831(m)) 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. 

1 of 10 

BOG-FRS - Public Release, April 2023
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTRICTED FR 

May 8, 2020 

Board of Directors 

SVB Financial Group 

3003 Tasman Drive 

Santa Clara, California 95054 

Dear Members of the Board: 

The Federal Reserve Bank of San Francisco (FRBSF) conducted a full-scope inspection of SVB Financial 

Group (SVBFG) beginning on December 30, 2019, based on September 30th financial statements. Our 

inspection concluded on January 17, 2020 and overall results were reviewed with management on 

February 6th. This Report of Inspection (ROI) concludes the 2019 supervisory cycle. 

SUMMARY CONCLUSIONS 

SVBFG’s overall financial condition and risk management practices are satisfactory; nonbanking activities 

have increased, but do not present significant financial risk to Silicon Valley Bank (SVB). While the risk 

management program’s framework design is satisfactory, implementation of an effective challenge 

process continues as work in progress. SVB remains under an enforcement action for compliance with 

Bank Secrecy Act/Anti-Money Laundering (BSA/AML) and Office of Foreign Assets Control (OFAC) 

requirements, and operational and technology risk governance weaknesses were noted during the cycle. 

Management is receptive to supervisory feedback, and the board is encouraged to continue providing 

resources and oversight as necessary to assist management in maintaining a risk management program 

commensurate with the firm’s risk profile and global operations. 

SCOPE 

SVBFG was inspected under the authority of section 5(c) of the Bank Holding Company Act of 1956, as 

amended. The inspection’s primary objectives were to assess the organization’s overall risk 

management and consolidated financial condition. We assessed the parent company's ability to act as a 

source of strength to SVB, reviewed intercompany transactions to determine compliance with laws and 

regulations, and assessed management’s progress in remediating outstanding supervisory issues. The 

inspection results also incorporate the cycle’s continuous monitoring activities. 

RATINGS 

SVBFG remains in satisfactory condition and is rated a composite “2” according to the Federal Reserve 

System’s Uniform Bank Holding Company rating system. Ratings are assigned on a scale from 1 to 5 in 

ascending order of supervisory concern. 

Rating 2 (Satisfactory). Holding companies in this group are fundamentally sound but 

may have modest weaknesses in risk management practices or financial condition. The 

weaknesses could develop into conditions of greater concern but are believed 

correctable in the normal course of business. As such, the supervisory response is 

limited. Cash flow is adequate to service obligations, and the nondepository entities are 

unlikely to have a significant negative impact on the subsidiary depository institution. 

2 of 10 

BOG-FRS - Public Release, April 2023
The table below lists SVBGG's composite, component, and subcomponent RFI/C (D) ratings assigned at 

this inspection, as well as those assigned at the two prior inspections. 

Current 

Inspection 

12/30/19 

Prior 

Inspection 

12/31/18 

Prior 

Inspection 

12/04/17 

SVB Financial Group 

R - Risk Management 2 2 2 

Components: 

Board and Senior Management Oversight 2 2 2 

Policies, Procedures, and Limits 2 2 2 

Risk Monitoring and MIS 3 3 3 

Internal Controls 2 2 2 

F - Financial Condition 2 2 2 

Components: 

Capital 2 2 2 

Asset Quality 2 2 2 

Earnings 2 2 2 

Liquidity 1 1 1 

I - Impact of Parent and Non-Depository 2 2 2 

Subsidiaries on Depository institution 

C - Composite Rating 2 2 2 

(D) - Depository Institution 2 2 2 

MATTERS REQUIRING ATTENTION (MRA)1 

Two new MRA related to risk management were communicated following a mid-cycle target review, but 

no additional issues are identified at this time. The status of outstanding matters are summarized below: 

SUMMARY OF OUTSTANDING FINDINGS 

Matters Requiring Attention 

Timeframe for 

Completion Date2 Issue Target Area Status Comments 

Cited at the 12/4/17 Inspection; 

implementation and validation of Redacted 

has addressed Regulation Y compliance 

concerns. 

Investment 

Tracking 

Framework 

Management -

Risk Management 

Closed during this 

inspection 

Close 

Cited at 7/29/19 Corporate Governance 

Target; management action plan received 

on 12/6/19. 

ERM Controls 

Monitoring 

Management -

Risk Management 

Carry 

Forward 3/31/21 

Model Overlay/ 

Assumption 

Governance 

Cited at 7/29/19 Corporate Governance 

Target; management action plan received 

on 12/6/19. 

Management -

Risk Management 

Carry 

Forward 9/30/20 

1

 MRA are matters that are important and that the Federal Reserve expects a banking organization to address over time. 2

 Management's original target date for remediation of the supervisory issue (includes audit validation as applicable). 

BOG-FRS - Public Release, April 2023
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTRICTED FR 

RISK MANAGEMENT – 2 

Overall risk management is satisfactory. Board and senior management oversight, policies, procedures, 

and limits, and internal controls are satisfactory; however, risk monitoring and management information 

systems (MIS) is only fair. Management has not completely established a credible, independent second 

line of defense (SLoD) as outlined within SVBFG’s risk management framework and commensurate with 

the firm’s growth and risk profile. Risk management related to the financial risk categories continue to 

mature at a reasonable pace, and BSA/AML and OFAC compliance programs are improving; however, 

governance and controls in the areas of technology and operational risk require enhanced attention. 

Board and Senior Management Oversight – 2 

Board and senior management oversight is satisfactory. The board provides adequate oversight of 

SVBFG’s consolidated business strategies, significant policies, and risk management practices through 

regular committee meetings complemented by a layered risk oversight structure. Bank and corporate 

boards are identical and stable, allowing for a high-level understanding of bank, parent, and nonbank 

subsidiary activities. The January 2019 acquisition of SVB Leerink acquisition and continued global 

expansion of SVBFG requires an increasingly sophisticated enterprise risk management (ERM) program. 

Management has demonstrated a willingness and ability to operate SVBFG in a safe and sound manner, 

including providing resources and oversight to address problem areas. Examiners reported SVB made 

significant progress in 2019 to achieve compliance with internal control issues that resulted in a 

January 30, 2017 Memorandum of Understanding (MOU) related to the bank’s BSA/AML and OFAC 

compliance programs. The same attention should be given to the development of a fulsome SLoD to 

ensure front-line management continues to operate within the board approved risk appetite statement 

and designed controls remain appropriate. 

Policies, Procedures, and Limits – 2 

Policies, procedures and limits is satisfactory. Policies and procedures provide an appropriate level of 

oversight for SVBFG’s business activities. Limits are tracked for compliance in various reports provided 

with committee packages presented to the board and senior management. The ERM Policy and 

Procedure Office was established to strengthen policy governance and house all policies and procedures 

in a centralized repository. Project plans include cataloguing and performing a control assessment of 

existing procedures, developing monitoring and reporting processes for ERM activities, selecting a 

vendor solution, and developing a migration plan to an ERM-managed central repository for improved 

efficiency and process consistency. Board and senior management committee packages contain various 

reports tracking performance levels with approved risk appetite limits. 

Risk Monitoring and MIS – 3 

Risk monitoring and MIS remains fair. Management continues to develop and implement a risk 

management framework; however, further enhancements are needed to ensure the SLoD maintains 

adequate oversight of functional management as the organization grows in scale and complexity. In 

addition, operational and security metrics are limited in number and too narrowly focused to provide a 

holistic view of technology operations and cybersecurity risks. Consequently, risk monitoring and MIS 

may not provide adequate information to identify and monitor enterprise risks and control 

4 of 10 

BOG-FRS - Public Release, April 2023
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTRICTED FR 

effectiveness. Nevertheless, management reports that examiner identified weaknesses concentrated in 

technology and operational risk and are being addressed. 

During the supervisory cycle, progress was made establishing an independent assessment of capital, 

market and liquidity risks. Additionally, the board approved a transition plan to move the Chief Credit 

Officer to the SLoD and more appropriately separate lending and credit administration activities. 

Additionally, the 2017 MRA requiring enhanced investment tracking was remediated and is closed. 

New MRA were identified in relation to model risk management (MRM) governance practices and ERM 

controls monitoring. Management’s action plans appear appropriate for remediation of the MRM MRA, 

with plans to clarify assumptions used to support results in the areas of credit risk, earnings, and capital. 

The additional transparency should be reflected in SVBFG’s setting of capital limits and buffers. Action 

plans to establish a formal program supporting functional management’s development and 

strengthening of its Control Identification, Testing, and Monitoring program also appear reasonable. As 

described, the program will provide SLoD oversight, validation, and monitoring to ensure that the front 

line is meeting program standards including control-testing requirements, managing issues, and action 

plans, and reporting control testing and monitoring results to the SLoD. Management has already 

published some core program documentation and is expected to complete remediation efforts during 

first quarter 2021. 

Internal Controls – 2 

SVBFG’s system of internal controls is satisfactory and provides adequate coverage of major risks and 

business activities. The audit program is independent, its methodology is adequate, scopes are 

reasonable based upon risk assessments, and workpapers support findings and conclusions. An external 

audit of SVBFG’s consolidated year-end 2018 financial statements resulted in an unqualified opinion. 

The internal credit review (ICR) function remains independent of lending activities, and regularly reports 

to the board. Management is evaluating ICR to ensure the function’s structure, staffing and approach 

continue to provide effective challenge and present an informed, independent view of credit risk 

activities within SVB’s lending activities. 

FINANCIAL CONDITION – 2 

SVBFG’s consolidated financial condition is satisfactory.3 Capital, asset quality and earnings are rated 

satisfactory; liquidity is strong. SVB accounted for 94 percent of SVBFG’s consolidated assets and 

generated 90 percent consolidated earnings; accordingly, conclusions presented in SVB’s April 13th 

report of examination (ROE) have been leveraged for consolidated financial analysis. Additionally, 

SVBFG’s financial position and performance is compared against the regional banking organization (RBO) 

peer group consisting of 88 companies with consolidated assets between $10 billion and $100 billion. 

Capital – 2 

Consolidated capital is satisfactory. Although SVBFG does not pay common dividends, share redemption 

activity resulted asset growth outpacing net equity growth and all capital ratios declined during the 

supervisory cycle. Nevertheless, as low-risk investment securities present a large portion of total assets, 

SVBFG’s capital ratios adjusted for asset risk remain above RBO averages. The consolidated common tier 

3 Unless otherwise noted, all financial information is as-of September 30, 2019 or for the nine months ended September 30, 2019, as applicable. 

5 of 10 

BOG-FRS - Public Release, April 2023
 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTRICTED FR 

one equity capital, tier one capital, total capital, and tier one leverage are 12.71 percent, 12.86 percent, 

13.70 percent, and 8.64 percent, respectively. 

Capital planning and oversight is acceptable; stress testing practices are adequate and receiving 

increased attention without a prescribed supervisory scenario and reporting framework. During 2019’s 

fourth quarter, SVBFG redeemed $350 million in senior debt and issued a like amount of preferred stock 

to improve capital efficiency and bolster its tier 1 capital level. Capital levels are anticipated to increase 

through 2021 as the firm achieves greater efficiencies and approaches share redemptions in a 

conservative manner. 

Asset Quality – 2 

Consolidated asset quality is satisfactory; with no low quality assets outside of SVB, the ROE informs this 

conclusion. Loan growth remained strong at 13 percent, and foreign office loans increased from 9 to 11 

percent of total loans. Consistent with other RBOs, SVBFG’s criticized and adversely classified asset 

ratios declined during the supervisory cycle; however, the firm’s 17 percent classified asset ratio exceeds 

the RBO peer average of 12 percent. Additionally, SVBFG’s net charge-off ratio 0.26 percent of total 

loans remains above the RBO peer of 0.18 percent. Problem assets are at manageable levels and consist 

primarily of loans centered in investor dependent and leveraged loans segments, which combine for 

under 20 percent of loan commitments. Further mitigating SVBFG credit risk, an investment portfolio 

comprising 40 percent of assets is largely comprised of U.S. Treasury and agency securities. 

As noted in SVB’s ROE, the methodology for maintaining an allowance for loan losses is acceptable, and 

the allowance’s level and trend is directionally consistent with the firm’s portfolio quality. Management 

noted it will recommend implementation of the Current Expected Credit Loss methodology in 2020, and 

estimates the allowance will increase by a modest amount based on current economic forecasts. 

Earnings – 2 

Earnings is satisfactory. Though SVBFG’s 1.90 percent annualized return on average assets far exceeds 

the RBO average of 1.37 percent, net retained earnings did not offset asset growth and capital ratios 

declined. The company’s operating efficiency is facilitated by a business banking strategy reflecting focus 

on moderately earning assets funded by large, low-cost accounts maintained by clients focused on 

innovation investing. The benefit of higher average loan yields and low cost funding are mitigated by a 

low volume of loans resulting in a net interest margin that approximates the RBO peer average. SVBFG’s 

global expansion supports core earnings as foreign activities continue significant growth, and category 

loan yields and funding costs are favorable to peer averages. Management expects net interest margin 

to flatten as interest bearing accounts are proportionally increasing and assets are repricing faster than 

deposits. 

Improved core earnings is largely attributable to higher non-interest income, which increased from 

1.36 percent of total assets to 2.01 percent, and now exceeds the peer average. Significant portions of 

non-interest income are generated by nonbanking sources, namely investment banking fees and 

venture capital revenue. With the acquisition of SVB Leerink, nonbank earnings increased from 

1.75 percent to 5.37 percent of consolidated earnings during the cycle. Additionally, significant growth 

in client funds maintained in offshore accounts (currently $95 billion) contributes to fee income. 

6 of 10 

BOG-FRS - Public Release, April 2023
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTRICTED FR 

Liquidity – 1 

Balance sheet liquidity is strong, and funds management practices are satisfactory. Asset liquidity 

includes $6 billion in cash and interest bearing bank balances and $24 billion in unpledged investment 

securities, which combine for 45 percent of total assets. Core deposits represent 80 percent of total 

assets, and net loans are a low 56 percent of core deposits. Although categorized as core deposits, 

funding concentrations exist within Private Equity and Venture Capital client accounts; SVBFG’s largest 

25 clients account for over 11 percent of total deposits, and under 11 percent of domestic deposits are 

insured. Foreign office deposits are increasing, currently accounting for 8 percent of total deposits. The 

bank’s London branch retail deposits are projected to exceed $1 billion British pounds in 2021, which 

will require the office to become a formal subsidiary of SVB. 

Liquidity and funding policies are adequate, and stress testing meets supervisory expectations for 

regional banking organizations. In response to supervisory concern, management conducted thorough 

analysis of the bank’s volatile funds flows and implemented a significant liquidity buffer. Access to 

contingent liquidity is maintained as well, with over $5 billion in secured borrowing capacity. 

IMPACT – 2 

The parent company and non-depository subsidiaries present limited likelihood of a significant negative 

impact on SVB. Risk management of parent and nonbank activities is sufficient to mitigate the impact to 

the bank, and the parent continues to provide financial and managerial resources to support SVB as 

needed. Furthermore, the parent company’s financial condition remains acceptable. Finally, the parent 

company remains in compliance with all laws and applicable regulations, including Regulation W. 

Parent Company Financial Analysis 

Parent company financials present a modest impact to the overall institution. Funding the redemption 

of $500 million in common stock and the January acquisition of SVB Leerink required unusually large 

dividends from SVB, resulting in the bank’s capital ratios declining approximately 50 basis points yearover-year; however, management shared plans to maintain the bank’s tier 1 leverage ratio closer to 

7.5 percent going forward. With $697 million in subordinated debt, the debt/equity ratio was well above 

peer; however, with a fourth quarter issuance of non-cumulative perpetual preferred debt to replace 

$350 million in senior debt, the parent leverage ratio will more closely approximate the RBO peer 

average. 

Common dividends have not been paid since 2009, and management conducts reasonable analysis prior 

to executing share redemptions. Parent-only liquidity remains sufficient; $816 million in cash and 

marketable securities exceed foreseeable obligations over the next 2 years. The parent’s liquidity and 

cash flow profile indicate limited risk to the subsidiary bank, but the Contingency Funding Plan can be 

enhanced to include the parent and non-bank entities. 

Intercompany Transactions 

The bank, parent company, and non-bank subsidiaries remain in compliance with Regulation W and 

interagency guidelines regarding income tax allocation in a holding company structure. The majority of 

inter-company transactions consist of employee expenses related to work performed on behalf of 

nonbank subsidiaries and overhead expenses. SVB employees and departments providing services to 

7 of 10 

BOG-FRS - Public Release, April 2023
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTRICTED FR 

nonbank affiliates complete a semi-annual Regulation W Cost Allocation Survey. The survey results are 

used to determine the allocation of personnel and occupancy expenses charged to bank affiliates. Costs 

are justified in expense studies performed to allocate the various expenses incurred by SVBFG, and 

reimbursement are made monthly. Prior internal audit findings regarding the Regulation W program 

were technical in nature and have been or are in the process of correction. Finally, the inter-company 

tax sharing agreement and payment practices comply with supervisory guidance. 

Nonbanking Activities 

The strategic relevance of nonbank activities are increasing as are their impact to consolidated risk 

management and financial condition. These activities primarily include venture capital investment and 

funds management under SVB Capital, and investment bank and broker dealer activities under recently 

purchased SVB Leerink. Nonbank activities closely align with SVBFG’s strategic plans and are being 

integrated into the global risk management framework, with the board and senior management 

providing regular and appropriate top-of-the-house oversight. During the year, management 

implemented a scalable investments tracking framework to remediate a prior supervisory concern 

regarding monitoring nonbank investing activities. Management implemented an organizational 

redesign to establish institutional governance, and continues to refine roles and responsibilities to 

ensure reasonable assurance of compliance with authorities governing permissible activities, including 

investment and merchant banking. Following parent company provision of acquisition funding, the 

nonbanking activities have generated positive cash flow to the organization. 

DEPOSITORY INSTITUTION – 2 

As reported in the April 13th ROE, SVB remains in satisfactory condition. Capital, Asset Quality, 

Management, Earnings, and Sensitivity were rated satisfactory; Liquidity was rated strong. The SVB 

examination included no new supervisory issues, although concerns exist in relation to technology and 

operational risk governance and management. Additionally, the bank has not fully complied with a 

2017 MOU related to legal requirements of BSA/AML and OFAC. 

OTHER MATTERS 

BSA/AML and OFAC Compliance Program 

The bank’s BSA/AML and OFAC compliance program remains less than satisfactory. The February 5th 

Supervisory Letter noted significant improvements; however, SVB has not achieved full compliance with 

the 2017 MOU, as additional progress is needed to remediate supervisory concerns related to Know 

Your Customer and Customer Due Diligence practices. 

Consumer Compliance 

The most recent FRBSF and Consumer Financial Protection Bureau (CFPB) compliance examinations have 

resulted in satisfactory ratings. The CFPB’s October 26, 2016 report identified violations related to loan 

originator compensation and Home Mortgage Disclosure Act reporting, and cited MRAs to ensure that 

corrective action was performed to address these violations and the FRBSF concurred with these 

findings. The October 22, 2018 FRBSF report noted that SVB continues to build out its consumer 

8 of 10 

BOG-FRS - Public Release, April 2023
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTRICTED FR 

compliance risk management framework, and did not identify any violations related to the nonenumerated consumer laws and regulations. SVB operates under a Strategic Plan for compliance with 

the Community Improvement Act, and the bank’s performance was assessed as Satisfactory at the 

October 2018 review. 

Information Technology (IT) 

SVB’s technology and operational risk management activities are satisfactory; however, additional MRA 

were cited regarding technology/operational risk governance and management, and the IT Management 

component was rated fair at the February 25, 2019 IT examination. The organization transitioned Chief 

Operating Officers on April 1, 2019, and significant changes have been set in motion to modernize the 

firm’s capabilities and formalize governance practices related to technology and operational risk and risk 

management. 

CLOSING COMMENTS 

SVBFG remains in satisfactory condition and, as no new supervisory issues are noted, a response to this 

ROI is not required. However, this inspection was conducted prior to recent events associated with 

COVID-19, and rapidly changing economic circumstances could have an adverse impact on all banking 

organizations. During this time, we have paused supervisory events and will monitor the firm’s financial 

condition and risk management practices to determine the appropriate supervisory response including 

future examination and inspection events. Nevertheless, each director should sign the Signature of 

Directors page, and the board’s review of this ROI should be recorded in SVBFG’s corporate records. The 

contents of this letter are confidential and should not be made public. 

Management’s cooperation throughout the 2019 supervisory cycle is appreciated, and FRBSF 

Redacted

 and I look forward to meeting with the board to discuss the report’s contents. 

Redacted

Please direct any immediate questions or concerns related to this ROI’s conclusions, or any matter 

involving our supervision of SVBFG, to me at 

Redacted

or 

Redacted . 

Redacted

Redacted

Central Point of Contact 

9 of 10 

BOG-FRS - Public Release, April 2023
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESTRICTED FR 

SIGNATURE OF DIRECTORS 

We, the undersigned directors of SVB Financial Group, Santa Clara, California have personally reviewed 

the contents of the report of inspection dated December 30, 2019. 

Signature of Directors Date 

Greg W. Becker 

Eric A. Benhamou 

John S. Clendening 

Roger F. Dunbar 

Joel P. Friedman 

Kimberly A. Jabal 

Jeffrey N. Maggioncalda 

Mary J. Miller 

Kate D. Mitchell 

John F. Robinson 

Garin K. Staglin 

NOTE: This form should remain attached to the report of inspection and be retained in the holding 

company’s file for review during subsequent inspections. The signature of committee members will 

suffice only if the committee includes outside directors and a resolution has been passed by the full 

board delegating the review to such committee. 

10 of 10 

BOG-FRS - Public Release, April 2023