Not investing such a large percentage of their capital in long-duration fixed income vehicles all at once.
There's nothing wrong with going long on duration, it's a hedge against decreasing rates. The problem is when you go all-in on long duration investments and rates suddenly shoot up like they did, you now can't sell those assets without eating a massive loss.
An appropriate hedge would have been doing what every retail bond trader does, build a ladder. If they had simply bought a wider variety of say 1/2/5/10 year securities then they could have let the longer-dated ones sit and sell the shorter duration ones (and they wouldn't have suffered such a huge loss of market value that spooked depositors and started the run in the first place).
Yields on short-term fixed income securities were absolute shit, barely above 0%. If you've got a bunch of cash and nowhere to put it to work then even a horribly yielding MBS seems like a good idea, and the inflation monster hadn't yet come to roost making the Fed start jacking rates up far earlier than anybody would have expected.
Even at the time it should have been seen as a short-sighted move, however. It was obvious ZIRP wouldn't go on forever and rate risk would bite you in the backside, so I can't call it anything but careless yield chasing without proper risk management.
They took deposits from depositors who would blow up if interest rates went up, and then used those deposits to buy assets that would blow up if interest rates went up. Interest rates went up, so their assets crashed at the same time that deposits plummeted and withdrawals skyrocketed.
If you want to standardly hedge against interest rate risk, that's what swaps are for. If you want to take on a comparatively less rate-sensitive portfolio, then you buy shorter-dated bonds. They yield less, but surely that's better than "the FDIC seizes your bank and your equity goes to zero."
I think the chief risk officer at this bank left last year, they may have been the person who got the bank into these positions. it will be interesting to see if there is news coverage about that person's role in the crisis.
There's nothing wrong with going long on duration, it's a hedge against decreasing rates. The problem is when you go all-in on long duration investments and rates suddenly shoot up like they did, you now can't sell those assets without eating a massive loss.
An appropriate hedge would have been doing what every retail bond trader does, build a ladder. If they had simply bought a wider variety of say 1/2/5/10 year securities then they could have let the longer-dated ones sit and sell the shorter duration ones (and they wouldn't have suffered such a huge loss of market value that spooked depositors and started the run in the first place).