ALM Modeling: A Case Study of Silicon Valley Bank's Default

In the landscape of modern banking supervision, the sudden default of a major institution is a rare occurrence, particularly in the United States. Regulatory bodies have established a robust system of safeguards, with central banks continuously monitoring compliance standards and conducting stress tests to preemptively address potential failures. The current environment makes it challenging for a bank to collapse without prior intervention from regulators, as the system is designed to extinguish risks before they escalate. This article will recreate the default of Silicon Valley Bank using an Asset Liability Management (ALM) simulator. We will assemble the specific portfolio of securities, simulate shifts in market conditions, and analyze depositor behavior. This approach will illustrate how unseen banking risks can manifest into significant capital shortfalls, ultimately threatening the stability of even the largest banks.