[drdec]

That's exactly what the bank did - they bought bonds. The type of bond they bought doesn't matter, what matters is that in a rising interest rate environment, the face value of the bonds fall and they are no longer producing higher yields than the saving account rates.

They didn't get greedy, they failed to anticipate the speed and amount that interest rates would rise.

[treis]

Yeah, but they bought bonds to make their numbers work. They had a choice of getting like 0.08% in overnight funds or 0.36% in short term T-bills or locking it up and getting ~3% in MBS. They chose the latter to make more money. If they had chosen the former things would have been far less critical.

In retrospect this was a huge risk. They locked up way too much money in long term securities for how flighty their deposits could be.

[snuxoll]

3% MBS, that's a good one. Try more like 1.25% coupon rate with the crazy low mortgage rates were at when SVB got the inrush of deposits (the banks and the GSEs gotta make their money too, with mortgage rates near 7% UMBS coupons are only at 5.5%).

[disgruntledphd2]

They too, thought that the world had fundamentally changed as a result of the pandemic.

[dllthomas]

The type of bond would matter if default risk was a meaningful piece of the puzzle here, but in this case it isn't (IIUC).