Which of the following factors contributed to the failure of Silicon Valley Bank?

Question

1. The bank had invested extensively in a portfolio of U.S. Treasuries and mortgage bonds.
2. The bank had exposed itself to highly volatile cryptocurrencies.
3. The bank had a geographically and sectorally concentrated depositor base.

(a) 1 only

(b) 2 only

(c) 3 only

(d) 1 and 3 only

Answer 1

Answer: (d) 1 and 3 only

 

Explanation: The depositor base of Silicon Valley Bank was geographically and sectorally concentrated, and the bank had invested extensively in a portfolio of U.S. Treasuries and mortgage bonds, which had accumulated unrealised losses that became too costly to liquidate in a distress situation. Therefore, option (d) is correct.