The 10Y treasury was worth $100 in 2021, but today is only worth $80. The bank still owes Alice $100 (a $100 liability), but the asset's value has declined. This has caused... issues... culminating in the past week of events.
You may hold 100K in treasuries today, but if your employer can't make payroll, you're gonna sell to pay rent.
Funny it seems like VC GPs were on the horn yesterday to withdraw, and I know a number of LPs telling me last Sun/Mon they'll be "out of the country" next month. Looks like some folks had early info.
Can you clarify this part?
I'm not super familiar with the intricacies of banking, so my guess is that this is simply due to part of it I don't know about, but...given all the "creative financial instruments" I've heard about since the runup to the 2008 crash, I have to wonder if this "market force" was at least partly due to something SVB was doing that wasn't terribly wise.
A startup-focused bank probably shouldn't have been investing into 10Y, 20Y, or 30Y US Treasuries, when their customers might only have 2 or 3 years worth of life in them.
So yeah, there's a bit of stupidity here for sure. But its the kind of stupid that I can imagine a lot of banks making.
If I deposit $100 into a demand account, I expect to get $100 when I demand it.
If you want to sell me $100 in the future for less today, that's something worth considering, but that wasn't the deal depositors had.
Therefore although bank runs aren't normal, they will almost surely happen to you if you put yourself in a situation where a bank run would destroy you. So you have to work as if bank runs are normal, or they will be normal.