The weird thing about all this to me is that the bank got sunk because they... Invested in very solid, predictable assets with guaranteed-except-for-apocalypse ROI.

They're not being punished for losing money; they're being punished for not having the money put somewhere it could grow faster.

I can't escape the feeling that America has lost its grip on what banks are supposed to be for.

If you buy bonds you can lose money. To say they're risk free is wrong. Treasuries carry no credit risk, but they do carry duration risk. If you buy treasury bonds above par, you can also lose money even if you hold to maturity (though it would be illogical to buy them with negative yield. However we have seen this being done in Europe anyway)

Duration risk is risk. Taking on 10-30y maturity is not "risk free"

Many of these banks are holding Munis and other non-treasury bonds, which are not free of credit risk and can be worth 0 in some circumstances. I don't know about SVB's balance sheet, just speaking generally

In this context, "lose" money means "You won't get as much money out as you would have if you had invested the money in something else?" Because if I buy a t-bond at $5, I'm expecting to get at least $5 back when it matures unless Uncle Sam has died.

If you buy a T-Bond at 110 the treasury will pay you back 100 at maturity, thus you lost money in nominal terms (depending on coupon rate). This has been happening in Europe with their previously negative yielding debt

What you mean to say is there's no credit risk. Not the same thing as you can't lose money. Saying you are guaranteed X dollars 30 years from now does not mean much at all if people need money today. This is not "safe" or prudent

Yes, but you would get more than that if you bought an (equally safe) treasury bond today. So it doesn’t make sense to claim that your bond is “still worth $5”.

Also, $5 today is not the same currency as $5 in ten years.

No, you’re fundamentally misunderstanding that a bank needs to be able to pay people when they withdraw their money. You can’t sell a bond that will be worth $5 in 30 years to get $5 in cash now when people can buy them from the fed for $3.

This has nothing to do with America, this is you not understanding duration risk.

Right, but the bank didn't invest 100% of its funds in MBS and t-bills; IIUC they had plenty to manage their projected operations cost and regular withdrawal / deposit activity. What changed is the panic / bank run. The panic sank them, but it'd sink basically any bank because no bank keeps enough liquid assets to clear all its deposit obligations.

... so SVB not only didn't have cash, it didn't have assets people were willing to buy / loan against to cover enough withdrawals to stop the run even though those assets had guaranteed ROI, which is interesting to me. Not enough lenders / potential creditors think some 10-year T-bills (and bailing out one of the biggest banks in the country on the lender's terms) is worth it?

Interesting.

MBS are neither solid, nor predictable nor do they have a guaranteed return. Have a look at the GFC, where many thought MBS are how you describe them.

I thought it was over-investment in 10-year T-Bills that did them in.

>they're being punished for not having the money put somewhere it could grow faster.

No, it's because they didn't properly manage their assets to serve existing depositors if those depositors wanted to withdraw. Locking up money for 10 years has obvious liquidity consequences. I knew that when I first learned what a "CD" is when I was like 10.

In that sense, no bank maintains 100% liquidity to handle withdrawals from every account holder.

What I'm having a hard time wrapping my head around is what the investors saw that made them decide to all withdraw at once.

>Duration risk is risk.

Correct, but the GP’s point was that it was not “startup creditworthiness risk”, the thing SVB was most ridiculed for taking on.

Yeah, arguably duration risk is pretty much the stogiest, most old-fashioned banking kind of risk that could possibly have tripped them up. Long-term loans and short-term deposits is basically what banks traditionally do.