imo this is very flawed thinking, a once in a 40 year event is almost 100% likely to happen in an average persons life — maybe twice. I think when it comes to either your life savings or gigantic amounts of money like banks manage it’s irresponsible to not consider economic cycles that even only happen once per 100 years because of how likely it is to happen once is your life and be absolutely devastating.
I stand by my statement, this is 100% on SVBs amateur hour monkey level thinking.
Well 0.1 -> 1.0 is a 900% increase, want to 1.0 -> 4.0 is "just" 300% so I'm not sure if this is a very good way to measures increases in interest rates...
> regression of interest rates from whenever to now, draw a line that's never violated until
Given the data (https://www.macrotrends.net/2015/fed-funds-rate-historical-c...) I would expected such line to be nearly useless due to a very low R2 (too lazy to actually calculate it...)
But yeah, even back in last March the bond markets were not expecting that the rates will be above 2.75% in 12 months.
In 2020 and 2021, we already had tons of talk of upcoming inflation due to the stimulus pacjages. I myself took some precautions, and I am really not at all savvy.
The management team of a major bank would certainly be aware of the risk of inflation given the massive uptick in money supply and that the fed would be forced to raise interests as soon as the inflation manifests.
I think incompetence is an easier explanation. Years of ZIRP bubbled incompetent or lazy people to the top.
It seems a pretty basic assumption that someone at SVB did a WHAT IF analysis to game out different scenarios if interest rates started rising. This is not rocket science.
>You can do a regression of interest rates from whenever to now, draw a line that's never violated until 2022 (even the 2020 lows were in-trend) and the 2022 highs were almost 50% higher than the trend
Well, if your bank is relying on analysis like this, it deserved to fail.
Here's how easy this situation was:
"Historically, would 5% interest rates be seen as crazy? What happens to our balance sheet if we see those rates?"
its no big deal to make a little bet based on that, but SVB seems to have bet the farm
had they even diversified their duration they would have been fine
I don't make excuses for dumb decisions, but... someone said recently when the Fed taps the brakes someone always goes through the windshield. This was a far more extreme scenario than tapping the brakes on a car. More like the moon stopped. We all knew it could theoretically, and what do you know, it just stopped.