4 ms·

What doesn't seem to be so explicitly stated is that due to rates going up, the bonds are worth less than they were when rates were high. So they wouldn't have

What doesn't seem to be so explicitly stated is that due to rates going up, the bonds are worth less than they were when rates were high. So they wouldn't have enough money if they turned the bonds into money. Guy lends you 100 at 3%, you buy 100 of bonds than pay you 5%. Guy asks for his money back, your bonds are worth only 80, big problem.

orangepurple 4y ago
One of the biggest banks in the world failed to account for a capital management risk scenario where interest rates go up? Insane
- lotsofpulp 4y ago
  Silicon Valley Bank was nowhere near one of the biggest banks in the world. https://en.wikipedia.org/wiki/List_of_largest_banks https://en.wikipedia.org/wiki/List_of_largest_banks Not even amongst the largest banks in the US: https://en.wikipedia.org/wiki/List_of_largest_banks_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_banks_in_the_U...
  - bgentry 4y ago
    They're #18 on the US list you linked, I saw other articles saying they were #16 so it probably just depends on the date assets were measured.
    - morelisp 4y ago
      The falloff is extremely rapid. They're closer in both an absolute and relative sense to the 40th than even the 10th.
- blitzar 4y ago
  Practically every single bond - which banks effectively have to buy and hold for regulatory reasons - has reduced in mark-to-market value every single day the last 2 years. Personally I think they are nuts for having (reportedly) such a long average duration of bonds in their portfolio, but they were also paying a pretty decent interest rate on savings to their customers - that money has to come from somewhere.
lordnacho 4y ago
Looks I said high when I meant low. For people who aren't in finance, if rates go up, bond prices go down: an instrument that pays 10% a year on 100 is worth less when there are new instruments paying 15% a year on 100. For the rates to match the original 100 is now lower, because that's the only way you get the same amount of interest per dollar spent buying the bond.

orangepurple 4y ago

One of the biggest banks in the world failed to account for a capital management risk scenario where interest rates go up? Insane

lotsofpulp 4y ago
Silicon Valley Bank was nowhere near one of the biggest banks in the world. https://en.wikipedia.org/wiki/List_of_largest_banks https://en.wikipedia.org/wiki/List_of_largest_banks Not even amongst the largest banks in the US: https://en.wikipedia.org/wiki/List_of_largest_banks_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_banks_in_the_U...
- bgentry 4y ago
  They're #18 on the US list you linked, I saw other articles saying they were #16 so it probably just depends on the date assets were measured.
  - morelisp 4y ago
    The falloff is extremely rapid. They're closer in both an absolute and relative sense to the 40th than even the 10th.
blitzar 4y ago
Practically every single bond - which banks effectively have to buy and hold for regulatory reasons - has reduced in mark-to-market value every single day the last 2 years. Personally I think they are nuts for having (reportedly) such a long average duration of bonds in their portfolio, but they were also paying a pretty decent interest rate on savings to their customers - that money has to come from somewhere.

lordnacho 4y ago

Looks I said high when I meant low. For people who aren't in finance, if rates go up, bond prices go down: an instrument that pays 10% a year on 100 is worth less when there are new instruments paying 15% a year on 100. For the rates to match the original 100 is now lower, because that's the only way you get the same amount of interest per dollar spent buying the bond.