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All the risks that SV takes, and the one that nearly bit them was putting their money into a bank that bought US government bonds. Reality is stranger than fict

• BaseballPhysics 4y ago
  Well, putting a huge fraction of your money, individually and collectively as an industry, into the same banking institution is by itself a risk. SVB's problem wasn't just buying government bonds. The other problem SVB had was a homogenous customer base that had highly correlated behaviours. In particular, during the COVID boom, their customers collectively raised a ton of money and created a huge pool of deposits for SVB. And then when that money dried up, that turned into net outflows. And these behaviours were correlated, both as a group, but also critically with... you guessed it... interest rates. Which means as bond values were dropping, they were simultaneously seeing a major change in their cashflow profile, and the combination of the two is what led to a liquidity crunch. That just isn't happening at other, more diversified banking institutions.