Liquidity Risk under Stress: Lessons from Recent Bank Failures

Abstract

The collapse of Silicon Valley Bank (SVB) and the forced acquisition of Credit Suisse in 2023-2024 have reignited global concerns about the resilience of liquidity risk management in modern banking. These events exposed significant vulnerabilities in how liquidity stress is modeled, especially under rapid withdrawal scenarios amplified by digital banking and social media dynamics. This paper analyzes the sequence of events leading to these failures, evaluates the adequacy of current liquidity risk metrics, particularly the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) that highlights their limitations in capturing the speed and scale of stress outflows. Through a comparative case study and regulatory review, the research argues for recalibrating existing liquidity frameworks to incorporate behavioral triggers, nonlinear outflow patterns, and the systemic impact of depositor concentration. The findings advocate for a more dynamic and forward-looking approach to liquidity risk, combining traditional metrics with real-time analytics and digital risk indicators to enhance early warning capabilities and systemic resilience.

Keywords: Liquidity risk, Bank failures, Silicon Valley Bank, Credit Suisse, Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), Stress testing, Depositor behavior, Digital banking risk, Financial stability, Contagion risk, Regulatory reform