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I don’t understand. If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market has more to do with your plan than any sort of fundamental truth - they’re both legitimate ways of valuing it. The mark to market only comes relevant if you’re experiencing a run, which they were holding sufficient regulatory liquidity for. They should have hedged their rates risk a bit better, especially as inflation became even a whisper, but if it hadn’t devolved into a run this whole story would be a foot note in a quarterly filing. Rather I suspect there was a bit of market manipulation by some wealthy valley insiders that took a relatively routine asset management event and turned it into a crisis. For profit.

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> I don’t understand. If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market has more to do with your plan than any sort of fundamental truth - they’re both legitimate ways of valuing it.

Correct. So, if you have customers and you put THEIR money into a bond and say you're holding it to maturity, but then your customers want their money, what exactly was the plan?

You just explained the businness model of banking.

Wrong. The business model of banking is managing the money to an appropriate duration. Locking it up isn't a business model.

Demand deposits can be immediately be recalled, so where exactly do you suggest they park it? In the central bank -- no bueno they've denied banking license for narrow banking. Margin lending that allows recall at any moment? I can think of some options but frankly I'd rather have my money in a bank that over-extends themselves on treasuries than most the alternatives. At least I'd most likely get 90+% of my money back eventually.

Only retroactively in a bank run are you really able to see just what duration and what amounts were the limit.

> Only retroactively in a bank run are you really able to see just what duration and what amounts were the limit.

Exactly, so don't lock it up. Glad you agree with me.

So put it where? Narrow banking is illegal by virtue of denying the banking license. You're basically left with what, something like recallable loans/margin? What are the other options?

Put it in bonds of whatever duration the bank chooses, but require sufficient equity that the shareholders will bear the loss and not the depositors?

Interest rates didn't increase in a single step. If the SVB had been forced to recognize their losses on a continuous MTM basis, then they'd have been forced to raise capital (or liquidate if they couldn't) by late 2022, when they were undercapitalized but not insolvent. The shareholders might still have been zeroed, but the depositors would have been fine.

In fact, the SVB designated those bonds as held-to-maturity, which allowed them to avoid reporting the loss, leaving them adequately capitalized for regulatory purposes despite being MTM insolvent. That accounting treatment doesn't change the actual economics though, so they still blew up.

>Put it in bonds of whatever duration the bank chooses, but require sufficient equity that the shareholders will bear the loss and not the depositors?

But that's literally what they did. They put it in 10 year treasuries that they had to sell for 87 cents on the dollar because every "thought leader" in Silicon Valley had the same idea at the same time and triggered a bank run on their own bank.

Everybody who has deposits will get 100 percent of their money back and everybody who holds equity in SVB will be (mostly) wiped out.

The depositors are getting 100% of their money now because the FDIC has guaranteed all deposits, including deposits in excess of the usual $250k limit. Any shortfall will be socialized among all participating banks. The SVB's shareholders didn't get bailed out, but their depositors absolutely just did.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

If the SVB had been forced to recognize its loss sooner, then this government bailout wouldn't have been necessary. Perhaps they'd have succeeded in raising more capital, and survived as an operating business; or perhaps their shareholders would still have been zeroed and their creditors would have seen a partial recovery. The depositors would have been fine either way though, no government bailout required.

The depositors are getting 100% of their money because the fed is lending against their assets at par. [1] The FDIC can be confident that they'll be able to make everybody whole because their assets exceed their liabilities. The Fed is going to hold the assets to maturity and get paid back by the Federal Government. "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." is legalese, nothing more.

[1] https://www.federalreserve.gov/newsevents/pressreleases/mone...

> The depositors are getting 100% of their money because the fed is lending against their assets at par.

And FMV is less than par, so that's an undercollateralized loan. That's another component of the subsidy to SVB depositors, and also a subsidy to shareholders of other banks that overexposed themselves to long-term debt (though too late for the SVB shareholders). There's no rational economic basis for this change in policy, and it goes against all modern central banking theory.

https://twitter.com/DanielaGabor/status/1635167154042716161

I hope you don't think holding the bond to maturity somehow means the loss isn't real? All bonds get held to maturity by someone (unless they default, but that's not the problem here). The FMV of a bond is ultimately determined by the value of those cash flows to that person; so if the FMV went down, then that should be a clue that value was fundamentally lost, regardless of who holds it.

The SVB's problem was that their HTM accounting treatment didn't model economic reality. The government is leaning into that fiction somewhat here, out of some combination of favoritism and concern for systemic risk. That doesn't make the fiction true though, and it doesn't mean the loss disappears; it just means the loss gets socialized.

the assets certainly do not exceed their liabilities. stop spreading this lie!

It's not that they shouldn't have bought treasuries, it's that they shouldn't have bought such long dated treasuries, and if they did, they should have hedged against interest rates, and if they didn't, they should have realized the loss when it was smaller. But they did none of those things and it was fatal to them.

The Fed kept making it clear that it was raising rates, and it seems like SVB just slipped quietly into that good night without lifting a finger to save itself. Which is bizarre and confusing and there must be more to the story (and details are coming out, like the risk manager role remaining open for nine months), but it does seem like crazy risks were taken. But not in pursuit of additional gains, like we are used to seeing, but it's looking more like negligence or a misunderstanding of their position.

They didn't buy treasuries, they bought mortgage-backed securities.

You can `s/treasuries/mortgage-backed securities/g` into my comment and it doesn't change much, but my understanding is that they had a lot of treasuries (not to the exclusion of having MBSs).

> To fund the redemptions, on Wednesday Silicon Valley Bank sold a $21bn bond portfolio consisting mostly of US Treasuries.

https://www.theguardian.com/us-news/2023/mar/10/silicon-vall...

They had very few Treasuries. Latest balance sheet from 2 months ago had $1B Treasuries compared to $91B MBS and $212B assets. https://www.cnbc.com/quotes/SIVB?tab=financials

All your link shows is that Guardian, Reuters, and others have equally as bad reporting as commenters here, just parroting each other constantly...

SVB's actual announcement says "Additionally, earlier today, SVB completed the sale of substantially of its available for sale securities portfolio. SVB sold approximately $21 billion of securities, which will result in an after tax loss of approximately $1.8 billion in the first quarter of 2023."

I haven't seen any evidence that there were substantial Treasuries sold, I just see MBS on their balance sheet.

The whole point of banking is that you borrow money from your depositors at low interest rates, but at a variable term length (The depositor can always withdraw), and you lend money to borrowers at high interest rates, but at a fixed term length (The bank can't just call in your mortgage tomorrow.)

Borrow short, lend long. The latter necessitates 'locking money up'.

A well-managed bank will properly manage the risk of the short loans getting called.

A poorly-managed bank will go all-in on getting short loans from people who are likely all going to call them in at the same time (startups), while putting their entire lending portfolio into lending long in an environment where long-term loans are dropping in value.

I know you are generalizing but there are times the yield curve is the other way and it is better to lend short and borrow long. But a well managed bank takes care to duration(not maturity) match their assets and liabilities while also taking into account liquidity needs and buffers. Also, the above applies to use of their own capital as well.

Correct. And they failed at it. Swap bonds for magic beans and see if it’s defensible. We know the bonds were worth less, but it doesn’t obviate failing to manage the half of the business that isn’t people handing you money

Magic beans could be anything. So I’m not sure that works

Correct. I think you are being blinded by the word "bonds" when evaluating the proportions you assign to mismanagement vs. being blindsided. I feel inviting swapping in a word that is anything except bonds may be a way to continue this interesting conversation

That’s literally the purpose of a bank my friend. Welcome, yes, the emperor has no clothes and never has.

No you didn't answer my question.

You made the case that how you value it depends on the plan. So what was the plan?

The answer, of course, was that these people didn't have a plan because they're incompetent, and that has nothing to do with the "purpose of a bank". It's just incompetence, nothing more.

The plan in a normal bank operations is to hold a mixture of long, medium, short, and liquid assets proportionate to a normal heavy withdrawal of funds. No bank stays liquid enough to survive the drawdowns they saw, because they’re not required to by law. They operate within the regulatory construct they exist in. The way they pay interest on deposits is by investing them to begin with, and if they’re invested in anything other than cash or treasuries, they face liquidity risk. That risk is not zero. It’s actually not even insubstantial. And risks are what the word implies, a risk. In an unlikely situation, they are insolvent while they liquidate assets - and often their long terms assets must be liquidated at a loss. This is literally how every bank operates. This is also why the government was able to step in and restore bank operations in a few days. They know how banks work too, they wrote the rules. So they know exactly what to do in this situation - because since it’s a risk of banking business, it can and will happen.

You seem to understand the concepts enough, where is the disconnect? It’s genuinely confusing. This isn’t a novel take on how a bank works.

So, your plan is to do away with fractional reserve banking entirely ? How do you think that would impact GDP and the overall functioning of the economy?

Not who you're responding to, but I actually don't think getting rid of fractional reserve banking is as crazy as it may sound at first. Maybe people who need to borrow money for 10 years shouldn't be borrowing it from people who will freak out if the loan isn't paid back in a week.

On the investor side you'd put cash you really need in a non-interest bearing account, and the rest invested at a duration and risk level appropriate for your situation. For most people/organizations the details would be outsourced to a fund manager. On the borrower side, small stuff would get bundled and securitized, big stuff could trade on its own. The industry's already moving in that direction. Modern communication technology has so drastically changed the physical scale over which a marketplace can function I think it's reasonable to ask if we still need the banking smoke and mirrors sitting between borrowers and lenders.

Sounds exactly like “held-to-mortality” plan! It does appear to work in at least some cases. The rest is getting bailed out.

[0] https://news.ycombinator.com/item?id=35130979

I mean, it’s a balancing act, right? If you plan to be able to accommodate 20% redemption in a single day, you’re left with a portfolio maturity of 5 days. You will be almost unavoidably marked to market but your yield, even when rates are high, is going to be roughly zero and you’re going out of business anyway.

You offer customers CDs if they want higher interest rates. Isn't that how it's been done for decades?

Yes, that would narrow the maturity gap and pass some rate risk on to customers. In SVB’s case, though, they would’ve needed to sell a lot of CDs relatively quickly, which means their rates (i.e., borrowing cost) would have to be high.

If your customers actions are all highly correlated, you need to be planning for things like this. The fact that having your whole customer base in a single group chat is a bad business model for a bank should not be the taxpayers’ problem.

it's good then that the funds to support the deposits are coming from the bank funded fdic fund not taxes then.

The whole argument is whether uninsured deposits should be provided by the FDIC. I have no problems with the insured amount being returned to customers.

The FDIC is a government owned business and shouldn’t be acting outside of it’s financial interests and obligations.

The other good news is that it will probably net out to costing little to nothing in the long term as they had enough assets to cover liabilities -- it was a liquidity crunch. Seems very much relevant to what the FDIC was created for -- to make depositors whole and stop contagion. It would be different if the bank was not properly asset backed.

> The other good news is that it will probably net out to costing little to nothing in the long term

If it cost nothing with no risk, surely a larger banking institution would have been willing to step in to solve it.

> Seems very much relevant to what the FDIC was created for

The FDIC was created to be an insurance corporation, not to bail out banks at their discretion.

The only risk for other banks is opportunity cost: right now, there are much more productive uses of their money than buying old agencies at par. If you had $200b or whatever laying around, you could buy their portfolio and make about the lowest risk $10b there is. But if you just bought new agencies at the same durations instead, you could easily double that.

EDIT: To clarify, this is the primary risk at large banks, where they could absorb a chunk of the bonds without significantly affecting their average maturity. Smaller banks obviously risk replaying the SVB run.

> The only risk for other banks is opportunity cost

To be clear, if banks can improve their risk profile for free, they will do that (because it frees them to invest in other risky stuff). A no-risk 5% return while the fed is giving out sub-5% interest rates is a no-brainer. The reason no banks are coming in to help is because it would be a bad investment.

They are 5-10% total return, not annual. My point is that it is not a bad investment, it’s just a less-good investment than equivalent bonds with the exact same (extremely low!) risk profile at today’s rates. They were a perfectly fine investment in 2021-22, they just aren’t as attractive in 2023. Could very well be good again in 2024 though, who knows.

Banks are not being "bailed out." Depositors are. SVB no longer exists. Now, you can certainly argue over the merits of bailing out depositors, but disingenuously framing it as a "bank bailout" is not the position to start from.

On that point, the government does have an obligation to "provide for the common defense and the general welfare of the United States," and that is clearly one of the overarching purposes of the Constitution itself. I find it hard to argue that saving tens of thousands of jobs[0] but by making the depositors whole, when the assets of SVB, illiquid though they may be, can cover 60-90% of the cost, is at all the wrong thing to do. This is literally part of why we have a government, and why markets are regulated at all.

[0]: I couldn't find a good source on the number of jobs, but that seems like the correct order of magnitude, anyway.

This is really semantics to me. Customers gave SVB their money because they paid high returns and engaged in risky behavior. That money was used to fund exec and employee salaries. People who take risks should bear the responsibility. Whether the bank still exists or not doesn't really concern me, since the people who ran it into the ground can turn around and do the same thing tomorrow.

> "provide for the common defense and the general welfare of the United States,"

We'll have to agree to disagree that bailing out well-off startup founders and employees is the best way to provide for the general welfare of the United States. I'd start with people undergoing medical bankruptcy, then about a million other categories of people before I got to them. Either way, I'd prefer the accounting to be transparent. The FDIC isn't acting as a corporation here, so they shouldn't be a corporation.

You really think employees of SVB bank clients should bear the burden of decisions made by their employers without their input, likely without their knowledge, and very little reason to care 99.99% of the time? Quick, without looking at your paystub, what bank does your employer use?

I don't disagree that doing things like addressing medical debt are worthy ways to promote the general welfare, but let's not pretend it's an either/or, thing here, either. You don't seem to want to acknowledge the full context of the situation, which seems at least on the edge of disengenuousness. This as well, after you try to frame it as a "bank bailout" then backpedal when called on it.

"very little reason to care"

Maybe they should care. Why shouldn't an employee care about financial stability of their employer?

Be honest: have you ever asked an employer what bank they use when you were interviewing? Is this your general policy? 10:1 says it's not, and you haven't. Even if you're the exception, I'm sure 99% of employees have literally never asked this question. Think about why that might be.

When I cared about stability I picked a big employer from which one would expect prudency. When I worked at a small company, I expected it to get ruined at any moment and planned accordingly. Since I became self-employed, I care a great deal about which bank I use and never put all eggs in one basket.

As I said: maybe they should.

But, you didn't actually ask. And that is literally my point.

I care about stability in my employment situation as much as the next canine. I've worked at 4 startups, each with under 150 employees apiece. I've asked questions about funding, client base, growth plans, etc. All the normal "hard" questions you have to ask as a prospective startup employee. Not once have I ever asked where they banked. Not once has anyone I know asked where their employer banked.

I would submit that if the banking system becomes fragile enough that asking about such a thing is actually a good idea, we have bigger problems as a whole, which would make a prospective employer's answer to any such question irrelevant. And if that's the case, why ask?

Another way to put it: it's not employees and consumers putting "all eggs in one basket." It's the economy as a whole. If there's one thing that the 2008 financial crisis proved, it's that if the banking system gets gummed up, second and third order effects very quickly begin to set in and ruin things for everybody.

Now, if you know how to reconstruct the banking system to avoid this, I'd like to hear it. But as long as my employer's payroll funds aren't stored under the CEO's mattress, I think I'm good with that.

I understand, but my point is that most people don't need it -- they either use proxy for that or already accept startup-level risks. So bankruptcy of a startup due to poor bank choice is just one of many failure modes for startups.

"we have bigger problems as a whole" I don't think so, at least based on Russia's experience. In the previous decade plenty of banks got closed with businesses losing money, but economy was ok and the banking ecosystem got healthier.

I believe employees understand that working at a small, highly-leveraged startup is risky, whether or not they know which bank they use. The employees, by law, get 2 months wages guaranteed by the government (under the WARN act), and should have additional savings from their highly-paid SV tech job (which is partially highly paid because the employer engages in risky behavior) which I think is plenty of cushion to get their finances in order.

But the real problem I have is with special treatment. There's plenty of people out there who get screwed by their employer's negligence/malice but the only ones who get bailed out beyond the letter of the law are the ones with the networks, money, and influence to make noise about it.

> but let's not pretend it's an either/or, thing here, either.

But it is. You either spend money in 1 place, or you spend it in another.

> "bank bailout"

This isn't like a well-defined term as far as I'm aware, so 2 situations where banks/customers rely on the government to come to the rescue when risks don't pay out can both be called bailouts, whether or not the company remains in tact. You see plenty of media organizations and people calling this a bailout despite the fact that the bank is being dissolved, because it's a colloquial term.

"People who take risks should bear the responsibility."

Exactly. In Russia we had people who'd serially deposit money into the shadiest of banks offering highest returns. Deposits are ensured upto some amount, so they'd collect interest, get their money from the state after a bank bankrupts (while the bank owners are enjoying stolen money in a no extradition country) and go to the next bank.

SVB was a bank that mostly served corporate operations accounts for tehc nad healthcare startups and small businesses. People were not banking there for high returns. This is not at all about risky investments (ffs the bank liquidity crunch came from long term bonds being too illiquid -- not exactly exotic asset management). The accounts impacted are mostly payroll, daily operating accounts (for expenses/manufacturing expenses/real estate lease payments etc).

The bank managers and investors are not being bailed out -- they have already lost everything.

You seem to be attaching some kind of anger for some ill conceived and non existant "happy go lucky risk wall street bet" type of activity, when this is about buisnesses losing their operating accounts who did nothing wrong except for have accounts at this bank instead of the next bank over.

> This is not at all about risky investments

Please stop repeating this. It is 100% about risky investments. https://www.theguardian.com/business/2023/mar/11/silicon-val...

Also, if your entire clientbase is in a single groupchat, you should be much more prepared for a bank run. This is like common-sense stuff. The fact that this is a bad business model isn't really my concern.

> The bank managers and investors are not being bailed out -- they have already lost everything.

The bank managers will walk away having earned millions of dollars in salary and bonuses, funded by risky bets, and the investors will walk away without bearing the consequences of the risks SVB took. Their investments in SVB went to zero, but there's still money that's been lost.

It is not at all about risky investments! It’s about poorly managing risk, which is entirely different. The underlying instruments are among the lowest-risk securities on the planet, the risk that killed SVB was in the investment strategy.

You can call it whatever you want. They lobbied to not be subject to liquidity stress tests, and then didn’t have liquid assets when customers came looking for their money. That was risky. They could have invested in shorter term contracts but they didn’t.

The FDIC charter: The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.

> and manages receiverships.

This feels like you're agreeing with me. Is that the case? Receiverships have a pretty specific meaning, which explicitly does not include resolving liquidity issues using third-party funding.

Exactly right. I do think the speed of deposit growth in a low rate environment made that challenging though.

Like if it were me, I'd grudgingly buy long-dated assets to keep the doors open, but also look toward reducing maturity as rates increase and start acquiring customers. Problem is that, very roughly speaking, those things only work if rates increase more slowly than you can acquire new customers.

but ... they could have charged customers to hold their money. or put it into money market funds. sure, less glamorous, but also less risky. of course they were also a startup, so making money was a bit more important than safety. it's just valley things.

Compared to other banks they also have relatively few customers with very high deposit each.

> your yield, even when rates are high, is going to be roughly zero and you’re going out of business anyway

Plenty of banks compete on benefits other than yield.

My point was more that if the bank’s yield on assets is zero-ish, their net interest income will be <= 0 and they will run out of money

They had 13b in cash going into this year and other highly liquid assets, those evaporated as the draw downs happened. Its not like they tucked away all assets into 10 year lockups (or higher risk loans). Even the bonds they did lock up -- in what would be considered 99% "normal" markets given the last few decades a sell off of those bonds would not have been highly problematic. It became problematic when they were so low return needing to be sold to reblalance the 10/90 rule when market rates were much better and they needed to be discounted due to the huge rate hikes.

SVB was pretty much considered the "boyscouts" of the industry and in normal circumstances they took a super conservative placement of the deposits. The only thing they could have done better was to (what would have normally been considered) overly hedge the bonds reducing their return even more.

I personally think they were too transparent with the liquidity crunch, and the investors and their companies that pulled out 20-30b before they even could execute the sell probably saw the ability to crash the bank and offer shark hooked bridge funding to the competitive companies left in the lurch. Its not like these folks were naive clients -- imho they were looking to do damage and get blood returns/equity on those bridge funding after the fall.

They had a customer base that would knife them at the first hint of a liquidity issue, then they had a liquidity issue. Of course a different approach would have reduced their returns, but then they’d still be in business.

Deposits from financials are treated as disappearing at the first opportunity from a regulatory point of view. Corporate deposits are considered volatile but less volatile. So the behaviour we have seen isn’t entirely unexpected.

It seems SVB has VC deposits and corporate deposits from startups that were effectively controlled by VC and behaved like financials in term of deposit outflows.

what does financials mean in this? can you explain this term, please?

Financial institution, so any bank, insurance company or institutional investor.

"non-suckers"

Not all of the capital was in a HTM portfolio. SVB I'm sure had a good handle on the typical flow of funds and based off of that with some margin of error (that was obviously not everyone wants everything today).

this is inherent to fractional reserve banks and maturity transformation. any bank would be vulnerable if there's a bank run. this is a basic thing to understand before making claims on this issue imho.

> If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market

The NPV calculation should use the market intrest rate. If you use that, it should be pretty much the same thing: an efficient market should value a bond at its NPV.

However, they were allowed to value HTM (hold to maturity) bonds at face value. That is just non-sensical from an economics perspective and just hides losses.

This is the right answer. Everything that has a market should be marked to market. This should be the default decision until some kind of good reason it's given to do otherwise.

This is only true for treasuries which are risk free. Any other bond includes other confounding risk factors impacting price which come out in MTM. These were agency bonds so would include duration/prepayment risks. But you also can face substantial liquidity risks in a fire sale, if you mark your assets to the full liquidation value, you need to mark against an order book to the depth of your holdings. Simple HTM NPV assumes you don’t face these pricing risks because you are holding for par+interest, discounted at risk free rates.

> If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market has more to do with your plan than any sort of fundamental truth - they’re both legitimate ways of valuing it.

If you hold a bond to maturity, you get it's Net Present Value at maturity which is actually Net Future Value. Mark to market of treasury bonds is essentially the NPV of the bond, considering current interest rates. When interest rates are near zero, sure, a dollar today and a dollar tomorrow are the same, with significant interest rates, they aren't. And there's the problem.

You can't give a depositor a $100 treasury bond, due in 2028, when they want $100 now. That's only worth $85 today (or whatever the value is, I dunno).

Aren’t the order of operations here incorrect? They were experiencing a lack of deposits due to VC pullback due to the interest rate rise, while depositors did not cut spending. This led to a liquidity crunch where they needed to sell discounted bonds to fill the gap. When the gap was conveyed to shareholders, the run began. If this is true, isn’t marking to market providing feedback about a potential liquidity crunch much earlier, ideally before the crunch even begins?

The “when the gap” bit is the piece that’s suspect to me. This isn’t an irregular occurrence in the world. The events are a little fishy to me because this isn’t crisis material. Banks go public precisely for the purpose of having access to additional liquidity in situations like this. The balance sheet hole was tiny compared to their assets.

Liquidity calculations for banks definitely include mark to market for HTM portfolios. But even then they were legally deemed sufficiently liquid. The run on the bank wasn’t expected or normal behavior.

this is why imho I see the pull out of the clients especially those that happened before the sale offer even came to term as an orchestrated ploy to tank the bank and then be in a position to offer shark bridge loans to those impacted. These were not naive clients making the move early -- and to me it seems less to do about the actual bank asset state and more to do with wanting blood in the water for wringing out equity and loan shark rates on those bridge offers.

> If you hold a bond to maturity you get it’s NPV.

Which, if you are being at all honest, means you calculate its present value by applying a discount rate in line with current risk free returns over the relevant time horizon, which will be a number suspiciously similar to the Treasury yield curve, and you will end up with something quite close to the mark-to-market value.

(And it has to be this way. Otherwise you could go buy two-year-old long dated bonds at a discount on the secondary market and make a killing, because the transaction would have an immediate NPV gain of 30% or more.)

Banks are a bit unique in that they can generally borrow at a cost much lower than the risk free rate due to the existence of non-interest-bearing and low-interest accounts, but IMO those should be thought of as a variable source of future profits, not as a reduction in the risk-free rate to be used for financial projections.

You say it takes a run, but all it really takes is an aggregate change in deposit behavior.

Like, for instance, your disproportionate share of startup clients easing off the cheap loans you had been offering them, because they’re no longer so cheap, and instead drawing down on (or moving) the balances that you had insisted they keep with you as collateral. Trouble was brewing on both sides of the business, not just on the asset position.

That’s what led up to the need to create more liquidity. The run happened after that when depositors spooked and drew down faster than the bank could liquidate assets. They were never, even MTM, under water. They just couldn’t raise enough cash in a single day to pay out all the withdrawals. But the cause of the run is the suspicious part to my mind. It feels orchestrated, and I have heard rumblings that Theils founders fund was spreading a whisper campaign against SVB while shorting.

>> But the cause of the run is the suspicious part to my mind.

I've heard multiple reports that one of their large investors got wind of their attempts to get a $2B loan so they wouldn't lose that money in their bond investments and thought it was a huge red flag and was the first to take out all of their money. The theory goes it was a large SV company, and news travelled on social media and the SV financial circles about they did and their belief that the bank was about to implode.

This created a long line forming on Friday morning of companies wanting to get their money out as well.

I agree, I'm not sure if the rumor was enough to spook people, or an orchestrated move by several companies, once one company found out what they were doing - but its very suspicious. Add in the founders were busy taking money at the same time they were liquidating their positions, which I'm sure the SEC will have something to say about as well.

Add in all the people who may have found out early and took out short positions as well who are now poised to possibly make a good chunk of money in all this chaos.

> They were never, even MTM, under water.

This is completely false. If the SVB (or any other bank) had been adequately capitalized on a MTM basis, then they could have borrowed from the Fed to withstand any bank run. The SVB was not:

https://www.bloomberg.com/news/articles/2023-03-10/the-balan...

The hold-to-maturity accounting allowed them to pretend otherwise, disregarding losses on long-term bonds when interest rates increased. They--and their regulators, since such accounting is perfectly legal--hoped this would let them ignore the problem until they could earn their way out of the hole. Instead interest rates increased further, the hole got deeper, and the SVB blew up.

It's not impossible that Thiel somehow benefitted from the collapse, though I'm not aware of any evidence for that yet. It's also possible that he simply didn't want his money in an insolvent bank.

this is a lie - they were insolvent and their assets were worth less than their liabilities.

If you hold a bond to maturity you get the par value of the bond, typically "100"

They were not holding sufficient tier 1 capital against a run or they would still be here today. The did, on the other hand, have enough to exceed regulatory requirements.

They apparently did not hedge at all and additionally, they invested heavily in mortgages which are well known to decline more in value in rising rate environments due to extension risk.

As an earlier poster noted, the primary reason to have a HTM portfolio is to avoid wild swings in reported earnings each quarter from a mark to market as their is no counter on the balance sheet that rises/falls in a similar manner.

You are probably correct in that if there was not a run it likely would be rear view. They would have done their capital raise and probably taken additional measures to improve their ability to withstand such an event. Of course, this all was trigger by a ratings agency and a few bloggers calling into question the unrealized losses in the HTM portfolio.

Then again, had the stress tests still be in place it is unlikely to have even gotten to the capital raise point.

> if it hadn’t devolved into a run this whole story would be a foot note in a quarterly filing. Rather I suspect there was a bit of market manipulation by some wealthy valley insiders that took a relatively routine asset management event and turned it into a crisis. For profit.

This is it. People are quick to point out mismanagement at svb, but it's only because of the run and the following collapse. After the fact, it's easy find data points to explain away anything. Holdkng on to low yield treasuries, really now, this is the telltale sign of a failing bank?

History still needs to be written on this one, don't discount the human factor, debtor's panic because of gossip run wild is not too far fetched.

> If you hold a bond to maturity you get it’s NPV

This is flawed logic. The NPV is not a real, tangible dollar amount. It is a calculation, based on the presumed yield of a theoretical set of alternative investment opportunities, of the Net PRESENT (today, right now) Value of the bond. This number is less than the sum of the bond's future payments, because the NPV is attempting to determine the current value of payments scheduled for receipt in the future.

In other words, if you are owed $1000 to be paid on Christmas Day of this year, the Net Present Value is less than $1000.

Valuing it at NPV == Valuing it at mark to market

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