4 ms·
All fair and good, as a noob I ask what else should SVB have done if not invest in Treasury Bonds (which according to OP are lowest risk)?
by ignoramous 4y ago
All fair and good, as a noob I ask what else should SVB have done if not invest in Treasury Bonds (which according to OP are lowest risk)?
- JumpCrisscross 4y ago> what else should SVB have done if not invest in Treasury Bonds Bought Treasury bills. They’re more liquid and have less interest rate risk. They yield less, however, which is why SVB bought the riskier stuff.
- abofh 4y agoThat's the thing I don't get at all, they had what, something like 160b in deposits - they could've kept 150b in bills, ten billion in Treasury bonds, and still made millions to hundreds of millions per year ostensibly risk free - surely enough to keep a ledger balanced. The bet on mbs at historic lows seemed like a pennies in front of steam rollers play
- jjoonathan 4y agoIt was. You're not missing anything.
- UncleMeat 4y agoBob, responsible for risk management, goes to the boss and says "Hey here is the plan that makes us $X and keeps us at acceptable risk of interest rate changes." Jim, the boss says "Jeez $X isn't very much money, our shareholders expect returns! If we changed our portfolio like this we'd make $Y. You are being a debbie downer, bond prices won't collapse and even if they do we just hold them to maturity and we are fine. We simply can't leave this much money on the table."
- filmgirlcw 4y agoDidn’t help the chief risk officer quit in April and a new person wasn’t hired until January. So there wasn’t even a Bob in this scenario.