Re:FDIC Takes over Silicon Valley Bank
by gamblor956 on Friday March 10, 2023 @02:46PM
(#35099845)
The problem was not that a bank had long-term fixed-rate bonds backing variable-rate liabilities.
The problem was that this bank almost exclusively used long-term bonds to back short-term liabilities. This was extremely poor risk management on the bank's part, compounded by a truly idiotic decision to sell some of these bonds at a huge loss, necessitating an emergency capital raise (see Tuesday's press release).
The CADFPI and FDIC clearly agreed, since they took over the bank at the start of the day to prevent it from digging itself into a bigger hole. (Usually they wait until Friday EOD, and transition control over the weekend. WaMU was a much bigger collapse, and they actually waited several days and took the time to find an acquiring bank before taking it over.)
The problem was that this bank almost exclusively used long-term bonds to back short-term liabilities. This was extremely poor risk management on the bank's part, compounded by a truly idiotic decision to sell some of these bonds at a huge loss, necessitating an emergency capital raise (see Tuesday's press release).
The CADFPI and FDIC clearly agreed, since they took over the bank at the start of the day to prevent it from digging itself into a bigger hole. (Usually they wait until Friday EOD, and transition control over the weekend. WaMU was a much bigger collapse, and they actually waited several days and took the time to find an acquiring bank before taking it over.)