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… none of which is to say that this made SVB particularly irresponsible or deserving of what happened this week. It really does look like a confluence of bad ti

… none of which is to say that this made SVB particularly irresponsible or deserving of what happened this week. It really does look like a confluence of bad timing w/r/t increasing interest rates and some unfortunately timed bond buys. IANAB, but it seems like all the money is there, just tied up in bonds that won’t mature for ten years, leaving them illiquid. If I understand this correctly, SVB will be bought by a larger fish, and we’re back to business as usual, albeit more consolidated (enormously bad, imo, but a different bad).

brookst 4y ago
Per Matt Levine, their fatal and unforgivable mistake was putting their assets in fixed, low-interest, HTM investments whose value was directly correlated to the financial health of SVB’s depositors, so the bank had to write down assets when depositors needed their money. In hindsight, it would have been better to keep cash. Or even better to find an asset inversely correlated with interest rates, even if it would have earned less money when rates were low. It was a lack of beta that killed them, and while there doesn’t seem to have been wrongdoing, it sure looks like a classic “failed to understand their own business” mistake.
- skeeter2020 4y ago
  They were also a victim of massive success: their deposits skyrocketed and they did not have anywhere to put the money. This is not unlike the same problem wealthy individuals had for the past 10 years if they felt like the stock market was over-valued; nothing else was paying any return. Now imagine your depositors start increasing their withdrawl rate and you're locked in 10 year bonds at < 2%. Uh oh...
  - brookst 4y ago
    It was the greed of seeking high returns even though their value would drop for the same conditions that would cause depositors to need their money. The bank would still exist, and just have been less profitable in previous years, if they had hedged against interest rate increases.
- reilly3000 4y ago
  Thanks, that's the explanation I was looking for. > inversely correlated with interest rates, even if it would have earned less money when rates were low. I'm not too savvy but isn't that what I-series bonds are for?
  - acomar 4y ago
    those have very low limits - 10k per tax identifier

brookst 4y ago

Per Matt Levine, their fatal and unforgivable mistake was putting their assets in fixed, low-interest, HTM investments whose value was directly correlated to the financial health of SVB’s depositors, so the bank had to write down assets when depositors needed their money. In hindsight, it would have been better to keep cash. Or even better to find an asset inversely correlated with interest rates, even if it would have earned less money when rates were low. It was a lack of beta that killed them, and while there doesn’t seem to have been wrongdoing, it sure looks like a classic “failed to understand their own business” mistake.

skeeter2020 4y ago
They were also a victim of massive success: their deposits skyrocketed and they did not have anywhere to put the money. This is not unlike the same problem wealthy individuals had for the past 10 years if they felt like the stock market was over-valued; nothing else was paying any return. Now imagine your depositors start increasing their withdrawl rate and you're locked in 10 year bonds at < 2%. Uh oh...
- brookst 4y ago
  It was the greed of seeking high returns even though their value would drop for the same conditions that would cause depositors to need their money. The bank would still exist, and just have been less profitable in previous years, if they had hedged against interest rate increases.
reilly3000 4y ago
Thanks, that's the explanation I was looking for. > inversely correlated with interest rates, even if it would have earned less money when rates were low. I'm not too savvy but isn't that what I-series bonds are for?
- acomar 4y ago
  those have very low limits - 10k per tax identifier