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I'm no expert but from what I understand SVB didn't do everything right. Failure of risk management. Invested too much in long-term securities in search of high
by jowea 3y ago
I'm no expert but from what I understand SVB didn't do everything right. Failure of risk management. Invested too much in long-term securities in search of higher rates than short-term securities when interest rates were already low. Failed to appreciate how fast they could suffer a bank-run with a clientele of highly interconnected and tech industry individuals and companies. Also failed to appreciate its clientele was exactly the ones who would suffer when interest rates rise and would start withdrawing money.
- vineyardmike 3y agoBy “did everything right” I should have said “did everything legal”. SVB didn’t break laws, just as you said, didn’t properly manage risk. If there was no run, they’d have made it through, just with low earnings expectations. FTX took customer money, gave it to friends, and used sticky notes and slack channels for accounting. FTX spent customer funds on beach houses and political ads and god knows what not on government bonds with a slightly too long maturity.
- jowea 3y agoAgreed. I think it just hit a new pet peeve of mine of people thinking treasury bonds are always zero-risk.