SVB Collapse Echoes '80s Crisis, Banks Resist Modern Risk Tools

Outdated risk models threaten another crisis. Despite proven tools like Monte Carlo simulations, banks resist change.

, and Administrator

2025 October 28 . 3:16 AM

1 min read

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SVB Collapse Echoes '80s Crisis, Banks Resist Modern Risk Tools

The collapse of Silicon Valley Bank (SVB) has raised alarming echoes of the 1980s savings and loan crisis. Experts warn that the failure of major financial institutions using outdated risk models could spark a broader financial crisis. Meanwhile, the resistance to adopting superior risk assessment tools like Monte Carlo simulations persists among large banks.

SVB's downfall was due to an asset-liability mismatch, a problem that devastated 1,507 savings and loan associations in the 1980s. The reliance on inadequate models by major financial institutions could trigger a wider crisis. Despite the superiority of Monte Carlo simulations, regulations do not mandate their use, and new ESG requirements may lack scientific rigour.

Large banks often resist implementing modern Monte Carlo simulation models due to their complexity and data requirements. Even basic Monte Carlo simulations are challenging for most major banks to adopt, despite the technology being available for decades. Legacy systems in these institutions hinder the adoption of advanced risk management technologies. Meanwhile, small banks, with lower switching costs, can more easily embrace such advancements.

Donald R. van Deventer, now at SAS, had warned about this type of failure three decades ago. The collapse of SVB was a repeat of the very issue he had predicted. Quantum computing promises unprecedented risk management capabilities, but institutions must overcome the pull of their legacy systems to adopt these technologies.

The SVB collapse highlights the urgent need for large banks to adopt superior risk assessment tools like Monte Carlo simulations. Organizational courage is required to embrace new technologies before the next crisis forces change. Regulators must also play their part in ensuring institutions have the right tools to navigate risks effectively.