We're talking about a 40 year old bank that bankrupted itself with a 1.5% 10-year mortgage backed security. I don't think "moving fast and breaking stuff" is what got us here.
Their investment may have been a case of greed and poorly controlled risk.
Risk management at financial institutions isnt meant to be an exercise of expecting or planning for the normal. Any way we slice it, they failed to adequately assess risk.
You can’t prepare for all outcomes and this was not one a bank expects. A 3 day 40 billion dollar draw down maybe a first ever event for any bank in all of history. Should they also have risk managed for a nuclear bomb going off in their lobby?
Get real man. Recognize that you are Monday morning quarterbacking here.
> Last week, depositors started pulling out their money and to meet that demand, the bank had to sell its investment in bonds whose value had declined due to rising interest rates.
> SVB Bank had last week sold its $21-billion bond portfolio consisting of US Treasuries and mortgage-backed securities at a loss of $1.8 billion.
> Over 95 percent of these mortgage-backed securities were over 10 years in duration, with a weighted average yield of 1.56 per cent.
> The bank had invested heavily in Mortgage-backed securities and US Treasuries last year through deposit money to earn higher returns. The bank had seen a huge influx of deposits but struggled to find enough credit demand to deploy that money at desired yields.
> As per reports, SVB had over $80 billion worth of investments in mortgage-backed securities.
https://www.moneycontrol.com/news/business/mc-explains-what-...
> Investors and depositors tried to pull $42 billion from Silicon Valley Bank on Thursday in one of the biggest US bank runs in more than a decade, according to a Friday regulatory filing.
> At the close of business on March 9, the bank had a negative cash balance of $958 million, according to an order taking possession of the bank filed Friday by California’s bank regulator, the Department of Financial Protection and Innovation.
> The scale of attempted withdrawals was so large that the bank ran out of cash and ways to get it.
https://webcache.googleusercontent.com/search?q=cache:O_auqz...
> The run was sparked by a letter that Silicon Valley Bank Chief Executive Officer Greg Becker sent to shareholders Wednesday. The bank had suffered a $1.8 billion loss on the sale of US treasuries and mortgage-backed securities and outlined a plan to raise $2.25 billion of capital to shore up its finances.
> But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.
> When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.
https://www.cnn.com/2023/03/13/investing/silicon-valley-bank....