Why would they buy 10-year bonds when their depositors are startups, many of whom won't exist in 10 years? Seems like shorter-term T-bills would have been more appropriate, but I know next to nothing about finance.
They made a gamble that if they needed to redeem them early that they would be able to do so without much penalty and that they wouldn't need to redeem too much if any (new deposits would cover old assets).
They lost on multiple fronts, interest rates rose so much that it became a huge loss to sell these bonds, the tech market slowed down meaning that fewer companies were getting infusions of cash and more of them were burning through their cash piles and the final death knell was that word of all this got out and it started a bank run.
> They lost on multiple fronts, interest rates rose... the tech market slowed... word of all this got out
The first two are the same thing and the latter is not really an "event" but rather the legally-mandatory observation of the first two? (Unless they want to commit fraud, of course.)
ISTM the issue was that their core product was as shallow as their customers'.
Shorter term bonds typically yield significantly less. Except the past year or so we’ve had “yield inversion” where the shorter term bonds are actually paying out more than long term bonds. This is an indicator of incoming economic downturn as it indicates institutions need cash now and are willing to pay for it.
Banks lend for long periods on the expectations that deposits that are withdrawn by some customers are balanced by new deposits from others.
But of course in the current environment there aren't a ton of startups depositing recently-raised funds.