SVB and Credit Suisse: What Risk Models Missed in 2023

March 2023: The Failure Nobody Saw Coming 

Silicon Valley Bank collapsed in 48 hours. Three days later, Signature Bank followed. Credit Suisse, a 167-year-old institution, one of the world’s largest 30 banks with assets exceeding $500 billion, was emergency-sold to UBS the same month by $3.25B. The damage impacted regulation and Swiss reputation. 

The financial world called it a shock. But the IMF had been publishing warnings that bank capital buffers 'could not be enough for some banks if financial conditions tightened sharply. Political sentiment on bank regulation had visibly shifted five years earlier. Central banks had clearly signaled the rate hiking cycle was coming. Geopolitical fragmentation was reshaping capital flows. Every major multilateral organization was flagging the same systemic vulnerabilities. 

The signals were there, the data was there. But monitoring failed. 

What They Were Watching 

SVB's internal models tracked capital ratios, liquidity buffers, and asset-liability matching. The Fed noted that “When interest rates started to rise, SVB did not consider the early signs of market risk, removed its hedges, and had significant unrealized losses on its held-to-maturity investment securities.” 

Credit Suisse had 108 on-site supervisory reviews between 2018-2022, with 382 flagged issues. Their risk management frameworks looked comprehensive on paper.  

Both banks had extensive compliance programs, stress testing, and risk committees. The internal machinery was running, but, it's possible to manage something so big without failing some red flags? 

What They Missed 

In 2018, the U.S. Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act, raising the threshold for enhanced regulatory oversight from $50 billion to $250 billion in assets. SVB had $209 billion. US regulators could treat midsize banks with a lighter approach.  

SVB's CEO had personally lobbied for the rollback. Banks celebrated the deregulation. This wasn't technical banking regulation. This was political economy. 

Meanwhile, the macro environment was transforming. Five months before the collapse, the IMF's October 2022 report explicitly warned that 'a sudden, disorderly tightening in financial conditions may interact with preexisting vulnerabilities' and that despite high capital levels, stress tests showed bank buffers might be insufficient.   

At the same time geopolitical fragmentation was accelerating, particularly the war in Ukraine with strong impact in many areas. 

These weren't inside technical risks. These were strategic-level shifts reshaping the entire operating environment, and it wasn’t a one day change, nor a one week change. But when there are so many external variables, all of them interconnected, something will eventually fail in our eyes. 

The Intelligence Gap 

Banks spend heavily on quantitative risk modeling. They have chief risk officers, model validation teams, and sophisticated stress testing. But there is still lacking strategic intelligence infrastructure. 

Consider some risk functions that financial institutions should be tracking these last years: 

Regulatory Sentiment Shifts: The 2018 deregulation wasn't just about rule changes. It represented a political consensus that midsize banks deserved lighter oversight. When President Biden blamed the rollback for SVB's failure in March 2023, it signaled an imminent reversal. Banks monitoring political sentiment would have seen this coming and adjusted their risk posture accordingly. 

Macro Regime Changes: The World Bank warned that countries facing high financial sector risks often lack adequate crisis management frameworks. The IMF's October 2023 stress tests showed many banks in advanced economies faced significant potential capital losses from securities marking and loan provisioning. This wasn't speculation - it was published analysis from multilateral institutions. 

Geopolitical Fragmentation: Research from the ECB showed that geopolitical risk materializes through multiple channels - reduced economic activity, surging inflation, increased sovereign risk, and shifts in capital flows. Banks with significant cross-border operations or sector concentrations needed scenario planning around fragmentation, not just interest rate curves. 

Emerging Risk Signals: In January 2024, the World Economic Forum's risk survey showed financial sector risks had dropped to the bottom of global concerns despite the March crisis. This complacency was itself a red flag that vulnerabilities were being ignored. 

None of this required proprietary data or advanced quantitative methods. It required systematic monitoring of regulatory developments, geopolitical analysis, and interpretation of multilateral institution research. 

Five Strategic Blind Spots 

1. Regulatory Environment as Lagging Indicator

Banks treat regulation as fixed constraints. They monitor rule changes but miss the political dynamics that determine enforcement intensity. 

The 2018 rollback created implicit permission for lighter supervision.  

Strategic intelligence tracks not just what regulators can do, but what political environment makes them willing to do it. 

2. Geopolitical Risk as Exogenous Shock

Most banks include geopolitical scenarios in stress tests but treat them as tail risks - low probability events to check a box. 

The IMF's analysis showed geopolitical tensions directly affect bank funding costs, profitability, and credit provision. ECB research found heightened geopolitical risk has been associated with lower bank capitalization throughout the past century. 

These aren't shocks. They're structural forces that need continuous assessment, not annual scenario exercises. 

3. Macro Transitions Modeled in Isolation

SVB missed the policy regime shift - from a decade of near-zero rates to aggressive tightening to combat inflation spikes caused partly by geopolitical disruption (Ukraine war's impact on energy and food prices). 

Banks model rate scenarios but don't systematically monitor the forces driving rate decisions - inflation sources, geopolitical supply shocks, political pressure on central banks. 

4. Multilateral Research as Academic Exercise

The IMF, World Bank, BIS, OECD and many other multilateral organizations publish extensive financial stability analysis. But the capacity to absorb and integrate all that information is still reduced. There is never enough people or agile processes that can identify these threats.  

5. Foresight Treated as Speculation

Credit Suisse's failures (Greensill, Archegos) showed a pattern: weak governance combined with inadequate strategic oversight. Swiss Financial Market Supervisory Authority (FINMA) post-crisis report noted repeated management errors and culture problems eroded client confidence years before collapse. 

Forward-looking scenario planning could have identified the trajectory. But banks compartmentalize "foresight" as soft skill planning exercises rather than systematic early warning. 

A Different Kind of Blindness  

Better stress tests won't solve this. Neither will more sophisticated models. 

SVB's interest rate exposure was particularly catastrophic not because their models failed, but because the context changed - regulatory oversight had weakened, depositor concentration had increased, and the macro regime had shifted. The vulnerability existed in their models. What they missed was whether it mattered. 

Banks have no systematic way to track these contextual shifts. What's missing is strategic intelligence monitoring: 

• Regulatory and political sentiment shifts across jurisdictions 

• Geopolitical developments and their financial transmission channels 

• Macro regime changes and their second-order effects 

• Multilateral institution research and risk assessments 

• Cross-domain pattern recognition (how political, economic, and geopolitical forces interact) 

This isn't risk management. It's strategic context - the layer above technical risk functions that helps institutions understand which risks matter and why. 

But the real edge comes from monitoring the external environment that determines whether internal vulnerabilities matter. SVB's interest rate exposure was particularly catastrophic because regulatory oversight had weakened and depositor concentration had increased while the macro policy regime shifted dramatically. 

The $50 Billion Lesson 

The 2023 bank failures had multiple causes - poor governance, concentrated risks, inadequate oversight. But they also revealed something else: strategic blindness. 

Institutions were optimized for yesterday's environment while missing clear signals about tomorrow's. The IMF published warnings. Political winds shifted visibly. Geopolitical fragmentation was documented. The information was public. Yet these banks weren't systematically tracking it.  

The variables existed; they showed values that, on their own, might not have been a problem at short therm. But nothing is isolated in today’s world. And the combination of factores that were created, when brought together, resulted in a catastrophic outcome. 

In today's information overload, there was no infrastructure to convert external intelligence into strategic foresight. They have excellent models for what they're watching. They have no systematic process for discovering what they should be watching. 

That's one critical gap.