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at the time they bought them the Fed was saying they had no plans to increase rates. You can blame SVB somewhat for not hedging but they took the Fed at their w

at the time they bought them the Fed was saying they had no plans to increase rates. You can blame SVB somewhat for not hedging but they took the Fed at their word and got burned for it, not exactly something that builds confidence in the financial system. The Fed bowed to political pressure related to high inflation rather than following the plan they laid out

sdfghswe 4y ago
> The Fed bowed to political pressure related to high inflation rather than following the plan they laid out When circumstances changed, they changed their plan. What do you normally do?
reducesuffering 4y ago
The Fed never said they wouldn't raise rates for 10 years, which is the duration that SVB bought mortgage-backed securities for. The Fed didn't bow to political pressure, they are following the plan which is their dual-mandate for 2% inflation and maximum employment. They had rates at 0 while employment numbers were bad, now that employment #'s are good and inflation is bad, it was time to raise rates. It's a balancing act.
beezle 4y ago
They did not buy everything in one day long before the Fed moved. The moves by the Fed were well telegraphed in advance and once the initial hike was done it was off to the races so to speak. SVB had many opportunities to do hedge and honestly, why on earth should bank or anyone else "take the Fed at their word". People make mistakes, institutions make mistakes, people misunderstand and on and on.
watwut 4y ago
They had no plans, things changed, plans changed. It is completely valid to blame SVB for not hedging. It is valid to blame them for lobbying to loose up regulation over how much risk they can take too. If anything is damaging trust, it is banks and investors lobbying to loosen up regulations, claiming the banks are too small to pose systemic risks and then ask for special exceptions the moment it does not work out.

sdfghswe 4y ago

> The Fed bowed to political pressure related to high inflation rather than following the plan they laid out When circumstances changed, they changed their plan. What do you normally do?

reducesuffering 4y ago

The Fed never said they wouldn't raise rates for 10 years, which is the duration that SVB bought mortgage-backed securities for. The Fed didn't bow to political pressure, they are following the plan which is their dual-mandate for 2% inflation and maximum employment. They had rates at 0 while employment numbers were bad, now that employment #'s are good and inflation is bad, it was time to raise rates. It's a balancing act.

beezle 4y ago

They did not buy everything in one day long before the Fed moved. The moves by the Fed were well telegraphed in advance and once the initial hike was done it was off to the races so to speak. SVB had many opportunities to do hedge and honestly, why on earth should bank or anyone else "take the Fed at their word". People make mistakes, institutions make mistakes, people misunderstand and on and on.

watwut 4y ago

They had no plans, things changed, plans changed. It is completely valid to blame SVB for not hedging. It is valid to blame them for lobbying to loose up regulation over how much risk they can take too. If anything is damaging trust, it is banks and investors lobbying to loosen up regulations, claiming the banks are too small to pose systemic risks and then ask for special exceptions the moment it does not work out.