you are required to critically evaluate the key risk factors that led to the collapse of Silicon Valley Bank (SVB). SVB's collapse in March 2023 marked the second largest bank failure in U.S. history after Washington Mutual's in 2008.

While bank failures aren't uncommon, it's rare to see banks of SVB's size become insolvent. Through its nearly four decades of existence, SVB served numerous tech startups and became the largest bank by deposits in Silicon Valley. The demise of SVB brings back memories of how seemingly well-run financial institutions can in an instant run into trouble due to unexpected events that catch these firms off guard. Your task is to apply the 'Three Lines of Defense model' to identify the causes and risk management failures which led to the bank's collapse. You should review and critically evaluate the causes of this risk management failure, using referenced examples and risk management approaches covered in the unit, particularly via the three lines of defense model. Your answer should also consider the role and effectiveness of regulation in the collapse, and the role of regulators who were supposed to closely monitor SVB.

 

Your answer should include recommendations on how such a collapse could have been avoided. As two-thirds of the marks will be allocated to , you should aim to allocate words to this section. In Part B, you are to critically evaluate the risks an established financial institution faces in investing spot Bitcoin ETF.

 

The U.S. SEC approved the first spot Bitcoin exchange traded fund (ETF) on 10 January 2024. The SEC approved 11 applications including from BlackRock, Fidelity, and Ark Investments, despite warnings from some officials and investor advocates that the products carried risks.

In a follow-up statement, the SEC chair, Gary Gensler, explained that "While we approved the listing and trading of certain spot Bitcoin ETF shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto." Critically analyze the risks of an established financial institution of deciding whether to invest in spot Bitcoin ETF.

The discussion should consider the types of risk that the financial institution is exposed to from this decision, and how these risks could be managed or mitigated. As one-third of the marks will be allocated to Part B, you should aim to allocate words to this section.