LogFAQs > #972141719

VintageGin posted...

SVB wasn't even doing anything particularly risky from what I understand. They invested in bonds (which are traditionally low risk) back in 2021. Then interest rates went up quite a bit and some companies with a lot of money in the bank got spooked and went JG Wentworth on it ("It's my money and I need it now!"). This caused a further run on the bank, and because of the terms of the bonds (10 years) they weren't able to cover everyone withdrawing money at once and had to start selling the bonds at a loss.

Prior to 2018, banks were required to manage risk in a certain way for portfolios over $50B. After 2018, this threshold was increased to $250B after significant lobbying from the bank industry.
SVB was above the 50 but below the 250, so they were legally allowed to take shortcuts that made this more likely to happen.

Additionally, banks are expected to, you know, manage risks. Especially the kind that can be planned for, such as a change in interest rates. Most banks do this as just a matter of day to day work. It would be like forgetting that you have an essay due because you didn't read the syllabus, and the teacher only mentioned it in class once.

And finally, the bonds that they purchased were long term assets. They had the luxury of living large the last few years because all of their clients were depositing significant money and not taking significant money out. So they got greedy and wanted to get more future dollars.

They were fundamentally mismanaged because they had a poor allocation of assets and cash flow.