Part 2/8:
SVB's downfall primarily stems from a combination of interest rate hikes and poor risk management. The bank, heavily invested in long-term fixed income securities, found itself vulnerable when rapid increases in interest rates—implemented by the Federal Reserve to combat inflation—led to mounting unrealized losses. This asset-liability mismatch created a classic problem: rising rates devalued SVB's long-duration assets, while the bank's funding sources, primarily deposits, remained relatively stable but susceptible to sudden withdrawals.