5 ms·

Why lock up the money for so long in such an unstable time as this? Better interest rates?

dragontamer 4y ago
> Better interest rates? You betcha. Here's the rates for March 2021. 3M would have gotten you 0.05% APY, while 10Y gets you 1.45% APY. https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202103 https://home.treasury.gov/resource-center/data-chart-center/...
- rvnx 4y ago
  Yeah, it sounded like a perfect plan if no customers wanted to get their funds within the next 10 years. ¯\_(ツ)_/¯
  - spywaregorilla 4y ago
    No that's not it. You can sell the bonds any time. But now they're worth considerably less because interest rates are much higher now. They locked themselves in at rate that are now terrible for 10 years.
    - Xeoncross 4y ago
      So weird to think that near-zero interest rates are the best you can do for the next 10 years. I'm pretty sure everyone way saying "lock in this low interest rate before they go up again!"
      - westurner 4y ago
        On Treasuries over what windowed series? https://fred.stlouisfed.org/tags/series?t=treasury%3Byield+curve https://fred.stlouisfed.org/tags/series?t=treasury%3Byield+c... Is this the one? "10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity" https://fred.stlouisfed.org/series/T10Y3M https://fred.stlouisfed.org/series/T10Y3M
      - plonk 4y ago
        It was locked? That’s the problem. The fixed-rate bonds had to be sold to give customers their cash.
    - hn_throwaway_99 4y ago
      No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets. Point being, if all of their customers didn't need to withdraw their money, then SVB would have been fine, as they could have safely held these assets to maturity and then redeemed them for full face value. The problem is that just when their long duration bonds lost value is also when their startup-heavy customer base needed their money out for expenses, and with VC funding dried up they weren't getting new deposits. SVB's problem was that their liquidity issue became a solvency issue when it became public that they were forced to sell their long duration bonds at a steep loss to cover withdrawals.
      - beezle 4y ago
        No, the problem was that VC's led and pushed for the panic withdraw of all funds. The bank would have had no problem if it was just the case of fewer new deposits. As to expense draw downs, those would have been ongoing and part of normal business operation.
        tsimionescu 4y ago
        It was a panic becaaue they realized the bank was vulnerable and so their money was vulnerable. This wasn't an irrational panic, it was the kind of panic you experience when being chased by a bear.
        vkou 4y ago
        > No, the problem was that VC's led and pushed for the panic withdraw of all funds. If you knew that your bank was insolvent, would you withdraw your funds before SHTF? Or would you twiddle your thumbs until everyone else did that, and your accounts got frozen, with you sweating bullets over whether or not you'll be taking a haircut on your deposits? Would your withdrawal be a 'panic', or simply a rational decision to not be the moron left holding what might be an empty bag?
      - spywaregorilla 4y ago
        > No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets. He is wrong. This is just an accounting term / treatment. You can still sell them, and will obviously recognize the loss when you do. Had they been 3 month bonds, they could have been sold for basically full value and remained solvent. Yeah, obviously the bank would have no problem if there were no bank run. But the reason there was a bank run was because the didn't have money because they locked their funds into bonds that subsequently lost all of their value. Whether they were "held to maturity" or not, the fact is that they lost value. Not that they were locked away for 10 years untouchably.
    - benjaminwootton 4y ago
      But surely there's a high chance of rates rising and your collateral falling in value over a ten year duration? It seems like madness to leave yourself totally exposed to a situation like this. Rates rise, your investments fall and your depositors want their money back doesn't sound beyond the realms of the imagination.
- beezle 4y ago
  The assets in their HTM portfolio did not all appear in March 2021 and it appears most of it was in various (C)MBS which likely paid a few bp more than comparable maturity treasuries. Unfortunately, the duration (sensitivity to change in interest rates) of mortgages extends in an increasing rate environment (less people prepaying) and so the portfolio probably lost a little bit more than comparable treasuries.

> Better interest rates? You betcha. Here's the rates for March 2021. 3M would have gotten you 0.05% APY, while 10Y gets you 1.45% APY. https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202103 https://home.treasury.gov/resource-center/data-chart-center/...

rvnx 4y ago
Yeah, it sounded like a perfect plan if no customers wanted to get their funds within the next 10 years. ¯\_(ツ)_/¯
- spywaregorilla 4y ago
  No that's not it. You can sell the bonds any time. But now they're worth considerably less because interest rates are much higher now. They locked themselves in at rate that are now terrible for 10 years.
  - Xeoncross 4y ago
    So weird to think that near-zero interest rates are the best you can do for the next 10 years. I'm pretty sure everyone way saying "lock in this low interest rate before they go up again!"
    - westurner 4y ago
      On Treasuries over what windowed series? https://fred.stlouisfed.org/tags/series?t=treasury%3Byield+curve https://fred.stlouisfed.org/tags/series?t=treasury%3Byield+c... Is this the one? "10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity" https://fred.stlouisfed.org/series/T10Y3M https://fred.stlouisfed.org/series/T10Y3M
    - plonk 4y ago
      It was locked? That’s the problem. The fixed-rate bonds had to be sold to give customers their cash.
  - hn_throwaway_99 4y ago
    No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets. Point being, if all of their customers didn't need to withdraw their money, then SVB would have been fine, as they could have safely held these assets to maturity and then redeemed them for full face value. The problem is that just when their long duration bonds lost value is also when their startup-heavy customer base needed their money out for expenses, and with VC funding dried up they weren't getting new deposits. SVB's problem was that their liquidity issue became a solvency issue when it became public that they were forced to sell their long duration bonds at a steep loss to cover withdrawals.
    - beezle 4y ago
      No, the problem was that VC's led and pushed for the panic withdraw of all funds. The bank would have had no problem if it was just the case of fewer new deposits. As to expense draw downs, those would have been ongoing and part of normal business operation.
      - tsimionescu 4y ago
        It was a panic becaaue they realized the bank was vulnerable and so their money was vulnerable. This wasn't an irrational panic, it was the kind of panic you experience when being chased by a bear.
      - vkou 4y ago
        > No, the problem was that VC's led and pushed for the panic withdraw of all funds. If you knew that your bank was insolvent, would you withdraw your funds before SHTF? Or would you twiddle your thumbs until everyone else did that, and your accounts got frozen, with you sweating bullets over whether or not you'll be taking a haircut on your deposits? Would your withdrawal be a 'panic', or simply a rational decision to not be the moron left holding what might be an empty bag?
    - spywaregorilla 4y ago
      > No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets. He is wrong. This is just an accounting term / treatment. You can still sell them, and will obviously recognize the loss when you do. Had they been 3 month bonds, they could have been sold for basically full value and remained solvent. Yeah, obviously the bank would have no problem if there were no bank run. But the reason there was a bank run was because the didn't have money because they locked their funds into bonds that subsequently lost all of their value. Whether they were "held to maturity" or not, the fact is that they lost value. Not that they were locked away for 10 years untouchably.
  - benjaminwootton 4y ago
    But surely there's a high chance of rates rising and your collateral falling in value over a ten year duration? It seems like madness to leave yourself totally exposed to a situation like this. Rates rise, your investments fall and your depositors want their money back doesn't sound beyond the realms of the imagination.
beezle 4y ago
The assets in their HTM portfolio did not all appear in March 2021 and it appears most of it was in various (C)MBS which likely paid a few bp more than comparable maturity treasuries. Unfortunately, the duration (sensitivity to change in interest rates) of mortgages extends in an increasing rate environment (less people prepaying) and so the portfolio probably lost a little bit more than comparable treasuries.