> Last week, depositors started pulling out their money and to meet that demand, the bank had to sell its investment in bonds whose value had declined due to rising interest rates.

> SVB Bank had last week sold its $21-billion bond portfolio consisting of US Treasuries and mortgage-backed securities at a loss of $1.8 billion.

> Over 95 percent of these mortgage-backed securities were over 10 years in duration, with a weighted average yield of 1.56 per cent.

> The bank had invested heavily in Mortgage-backed securities and US Treasuries last year through deposit money to earn higher returns. The bank had seen a huge influx of deposits but struggled to find enough credit demand to deploy that money at desired yields.

> As per reports, SVB had over $80 billion worth of investments in mortgage-backed securities.

https://www.moneycontrol.com/news/business/mc-explains-what-...

> Investors and depositors tried to pull $42 billion from Silicon Valley Bank on Thursday in one of the biggest US bank runs in more than a decade, according to a Friday regulatory filing.

> At the close of business on March 9, the bank had a negative cash balance of $958 million, according to an order taking possession of the bank filed Friday by California’s bank regulator, the Department of Financial Protection and Innovation.

> The scale of attempted withdrawals was so large that the bank ran out of cash and ways to get it.

https://webcache.googleusercontent.com/search?q=cache:O_auqz...

> The run was sparked by a letter that Silicon Valley Bank Chief Executive Officer Greg Becker sent to shareholders Wednesday. The bank had suffered a $1.8 billion loss on the sale of US treasuries and mortgage-backed securities and outlined a plan to raise $2.25 billion of capital to shore up its finances.

Why did they choose to realize that loss?

I feel like the 10 year MBS investment might actually have been a case of excess risk. In a world of zero interest rates (which I presume is when they invested in the MBS), 1.5%-2% yield makes SVB quite a bit of extra profit.

Their investment may have been a case of greed and poorly controlled risk.

Go back to 2021 before rates go up and tell me what you’d do. Kinda damned either way. The bank had to make profit to survive btw. They dont pay for their services on good will.

Most other banks found ways to survive the environment in 2021. So clearly there are ways to do it without locking money up for 10 years in MBS.

Most other banks didn't see the incredibly growth SVB did, either.

I understand that they needed to put the money to work somewhere, but they really chose a bad way to do it. Hence the 'poorly controlled risk' that I mentioned.

I think it was quite fair to think they could have sold 10 year treasuries at cost at least. An invert yield curve for this long is not normal. But yes maybe they should have laddered better.

>An invert yield curve for this long is not normal.

Risk management at financial institutions isnt meant to be an exercise of expecting or planning for the normal. Any way we slice it, they failed to adequately assess risk.

You understand that’s the silliness of risk management. Anyone who failed is always accused of not managing it. It’s a truism.

You can’t prepare for all outcomes and this was not one a bank expects. A 3 day 40 billion dollar draw down maybe a first ever event for any bank in all of history. Should they also have risk managed for a nuclear bomb going off in their lobby?

Get real man. Recognize that you are Monday morning quarterbacking here.