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In 2021 they should have known: 1. Long dated treasuries would almost certainly underperform long term if there were any interest rate increases 2. Interest r

In 2021 they should have known: 1. Long dated treasuries would almost certainly underperform long term if there were any interest rate increases 2. Interest rate increases were likely due to high inflation, low unemployment 3. Interest rate increases would correlate with a reduction in deposits I’m not blaming a single person at all, but the bank in general should have been aware of this. While this seems more obvious in retrospect, it should at the very least have become obvious once the first rate hikes were announced

hnfong 4y ago
SVB indeed made some very questionable bets, but people should remember that the Fed was saying "inflation is transitory" up until the end of 2021: https://fortune.com/2021/12/03/inflation-no-longer-transitory-higher-prices-fed-chair-powell-treasury-yellen/ https://fortune.com/2021/12/03/inflation-no-longer-transitor... If you actually believed that narrative, you wouldn't think buying long term MBS was that risky. I think you'd be crazy not to doubt the narrative at least a bit given all the money dumped into the system during covid, I'm just saying it's not just one bank making questionable stupid decisions.
- causality0 4y ago
  High inflation was coming anyway due to the baby boomer cohort retiring. Then the governments of the world pulled ten trillion dollars out of thin air. Anybody with a business degree who didn't see crazy high inflation coming out of that should've had it revoked.
  - hnfong 4y ago
    > Anybody with a business degree who didn't see crazy high inflation coming out of that should've had it revoked. Jay Powell had a degree in politics and law. So, yeah.
    - jjeaff 4y ago
      Powell completed his JD in 1979 but then started working in investment banking by '84 and stayed in various finance jobs including under-secretary of finance from then to now. So he has the relevant experience. I doubt a business degree rather than a JD from the seventies would make any difference today.
- polygamous_bat 4y ago
  Job of the risk team is to be skeptical, ask "but what if it's not?" and hedge against that possibility. If your job is to believe everything you hear without doing proper risk analysis, why should a bank pay you?
FPGAhacker 4y ago
> I’m not blaming a single person at all, but the bank in general should have been aware of this. What does this even mean? What else is there to blame other than individual people making decisions?
- opportune 4y ago
  Probably the senior executive team in aggregate, but the speculation based on dates of departure/joining is unfairly laying blame at individuals without much evidence
blindriver 4y ago
I don't think any of these are relevant to the situation. 1 is obvious, that's CFA Level 1. 2 is also obvious but in 2021 the Fed said inflation was transitory. After over a decade of sub-2% inflation, it wasn't hard to not believe that. 3 is not true. As rates rise, more people pull money out of the stock market and park it into higher interest deposits. The problem with SVB is that they don't have a lot of retail customers that would park their investments.
- webmaven 4y ago
  > 3 is not true. As rates rise, more people pull money out of the stock market and park it into higher interest deposits. For "lower deposits" read "fewer startups get funded and deposit their funds at the bank."
- HDThoreaun 4y ago
  Oh the fed said inflation was transitory, risk team can take the day off I guess, no need to worry. 3. is true because literaly half their were deposits startups who will have a hard time raising if interest rates rise.
- ketzo 4y ago
  I don't know how fast banks can sell treasuries, but I feel like the answer has to be shorter than "all of 2022" 3 is pretty predictable for a bank that advertised itself as banking half of all VC-backed startups in the U.S.

hnfong 4y ago

SVB indeed made some very questionable bets, but people should remember that the Fed was saying "inflation is transitory" up until the end of 2021: https://fortune.com/2021/12/03/inflation-no-longer-transitory-higher-prices-fed-chair-powell-treasury-yellen/ https://fortune.com/2021/12/03/inflation-no-longer-transitor... If you actually believed that narrative, you wouldn't think buying long term MBS was that risky. I think you'd be crazy not to doubt the narrative at least a bit given all the money dumped into the system during covid, I'm just saying it's not just one bank making questionable stupid decisions.

causality0 4y ago
High inflation was coming anyway due to the baby boomer cohort retiring. Then the governments of the world pulled ten trillion dollars out of thin air. Anybody with a business degree who didn't see crazy high inflation coming out of that should've had it revoked.
- hnfong 4y ago
  > Anybody with a business degree who didn't see crazy high inflation coming out of that should've had it revoked. Jay Powell had a degree in politics and law. So, yeah.
  - jjeaff 4y ago
    Powell completed his JD in 1979 but then started working in investment banking by '84 and stayed in various finance jobs including under-secretary of finance from then to now. So he has the relevant experience. I doubt a business degree rather than a JD from the seventies would make any difference today.
polygamous_bat 4y ago
Job of the risk team is to be skeptical, ask "but what if it's not?" and hedge against that possibility. If your job is to believe everything you hear without doing proper risk analysis, why should a bank pay you?

FPGAhacker 4y ago

> I’m not blaming a single person at all, but the bank in general should have been aware of this. What does this even mean? What else is there to blame other than individual people making decisions?

opportune 4y ago
Probably the senior executive team in aggregate, but the speculation based on dates of departure/joining is unfairly laying blame at individuals without much evidence

blindriver 4y ago

I don't think any of these are relevant to the situation. 1 is obvious, that's CFA Level 1. 2 is also obvious but in 2021 the Fed said inflation was transitory. After over a decade of sub-2% inflation, it wasn't hard to not believe that. 3 is not true. As rates rise, more people pull money out of the stock market and park it into higher interest deposits. The problem with SVB is that they don't have a lot of retail customers that would park their investments.

webmaven 4y ago
> 3 is not true. As rates rise, more people pull money out of the stock market and park it into higher interest deposits. For "lower deposits" read "fewer startups get funded and deposit their funds at the bank."
HDThoreaun 4y ago
Oh the fed said inflation was transitory, risk team can take the day off I guess, no need to worry. 3. is true because literaly half their were deposits startups who will have a hard time raising if interest rates rise.
ketzo 4y ago
I don't know how fast banks can sell treasuries, but I feel like the answer has to be shorter than "all of 2022" 3 is pretty predictable for a bank that advertised itself as banking half of all VC-backed startups in the U.S.