Sustainable Development Goals

Abstract/Objectives

This paper explores the tangible effects of the Federal Reserve's regulatory monetary policy on the individual economy, focusing on the case of Silicon Valley Bank's (SVB) collapse. By analyzing SVB's financial information and regulatory documents of the Federal Reserve,It elucidates how Mortgage-Backed Securities (MBS), once considered safe assets, transformed into a fatal crisis under the Federal Reserve's policy shift. Furthermore, this paper compares the divergent outcomes faced by the Federal Reserve and SVB, both holding a significant proportion of high-ratio Mortgage-Backed Securities, amidst rising interest rates. Finally, the monetary policy rationale of the Federal Reserve is discussed and highlights the Federal Deposit Insurance Corporation (FDIC) as the ultimate lender in the SVB bank failure.

Results/Contributions

This thesis examines the substantial economic impact of the Federal Reserve's monetary policy shift from accommodative to tightening, as demonstrated through the SVB (Silicon Valley Bank) collapse. The study analyzed SVB's financial information and the Fed's regulatory documentation regarding the bank. It highlights how Mortgage Backed Securities (MBS) shifted from being seen as safe assets to becoming a critical liability amid changes in the Fed's policy. The thesis also contrasts the differing outcomes for the Fed and SVB, even though both held significant amounts of MBS when faced with rising interest rates. The paper discusses the Federal Reserve's monetary policy basis and identifies the Federal Deposit Insurance Corporation (FDIC) as the ultimate loser in the SVB collapse, becoming the last lender in the event.

Keywords

Silicon Valley BankFederal ReserveMonetary PolicyRegulationInterest RatesMortgage-Backed SecuritiesConvexityDuration

References