5 ms·
I have no clue about the actual internals at SVB, but an example of why: say a bank has $200bn in assets that they put into mortgage backed securities yielding
by kolbe 4y ago
I have no clue about the actual internals at SVB, but an example of why: say a bank has $200bn in assets that they put into mortgage backed securities yielding 1.5% for 10 years. Lets say that means they paid $86 per $100 bond. Now rates rise to 6%, so they're worth $60 per bond. They just lost 30% of $200bn. If their net capital had been +$10bn before this, it's now -$50bn. So, if every single person demanded their money back, the bank would only be able to give 75 cents on the dollar. But if you get your money before everyone else, then maybe they give you back the full dollar. On the other hand, if you let $100bn worth of capital flow out before you try to get yours, now there's only 50 cents on the dollar left over.
So, in cases where you think this is a risk, it's best to move swiftly.
- UncleOxidant 4y agoBut why did they pile into bonds all at once? Wouldn't you normally do the equivalent to Dollar Cost Averaging? Did they have no other choice but to park a huge chunk of money into various government bonds at exactly the wrong time?
- danielmarkbruce 4y agoThey didn't get it all in at exactly the wrong time, but it does appear they lost something like $10-15 bill on around $80-$90 bill or so of securities. That's a lot of money given the entire shareholders equity is around $16 bill. They are public, you can see their filings at the SEC. I'd guess some hedge fund paying attention noticed this weeks ago and just made a killing.
- heartbreak 4y agoWhat makes you think they did it all at once?
- deleted 4y ago[deleted]