Re:Silicon Valley Bank unmasks the hypocrisy of libertarian ...
by gregw2 on Wednesday March 15, 2023 @10:16AM
(#35168644)
Why not buy a hedge? Their risk committee met 18 times.
Because HoldForMaturity assets can't be hedged? Or it cuts into profit and affects your stock and management bonuses which they weren't used to giving up, and your share losses due to the hedge imperil your company but just in a different way?
Re:Silicon Valley Bank unmasks the hypocrisy of libertarian ...
by vgatherps on Wednesday March 15, 2023 @11:11AM
(#35169531)
Oh to be clear I agree with the OP that they were incompetent/greedy, I just think that missing a CRO is at best a symptom and not a cause. Every single invite to a risk committee meeting should know exactly well what sort of rates risk they had.
As for the hedge, it’s probably a greed/returns question. If you buy then 10 year and sell everything between say 2 to 10 years as a curve hedge, you’ve basically bought the two year with extra steps. There’s no free lunch where you get returns of ten year without the risk on ten year.
You could imagine some imperfect hedge might be better but sort of same problem.
SVB got blown up on a trade that is kind of at the core of what banks do (this is also why every bank is hurting). To even exist the bank has to be stuffed full of people very knowledgeable about rates risk at all levels of management. There should have been no shortage of people at any level, including executive, that understood the risks.
It wasn’t even like this was some weird bespoke product or something, they got blown up by plain treasuries afaiu. This is the sort of thing that’s “introduction to rates 101” material. They didn’t need a CRO to tell them this.