Also out most of the banks - you would expect that the clients of SVB are a little more sophisticated than your retail bank demographic being start-up companies and all (big assumption).
Assuming these people have any level of sophistication is what gets us into these messes. It’s good to remember they are betting billions of dollars based on nothing but fomo and don’t know anything special at all.
Is that worth it?
Sometimes you can be too smart for your own good: in this case the CEO might have assumed that everyone knows that all banks inherently carry a risk in case of a bank run, but all the market hears is the word “risk” and panics correspondingly.
I imagine it like this:
1. Place some money in bank.
2. Wait till bank bought bonds, treasuries and all that jazz.
3. Short the banks stock.
4. Withdraw huge amounts of money and cause liquidity crunch.
5. As the bank needs to keep its capital ratio above 5%, it will close positions at a loss, causing a death spiral (the bank run. As more people want to secure what’s left, the bank needs to unwind more positions at a loss. Which will cause even more people wanting to withdraw, which results in even more selling of the bank.
6. Eventually the bank becomes insolvent.
7. Buy stock back.
There might be more variables to it, such as the price of the treasuries itself (you might want to wait for a rate hike, inflation, credit rating change or whatever before you make the bank sell), but generally this is how imagine such a trade.