[rehitman]

Everyone says SVB had bad investment and they deserv it etc. However, I am worried about this being the first of many similar financial instutation failing. After all, bonds are supposed to be safe on paper. Increasintg interest rate fast can break many people who are not able to adjust.

[snewman]

These bonds were supposed to be "safe" in the sense that they would be repaid on schedule. And that's been fine, AFAIK there is no suggestion that they won't be repaid.

The problem is that SVB, knowingly, took on "interest rate risk" by buying long-term bonds (average 6.2 years, I read) that lock in an interest rate. The money to purchase those bonds came from deposits, which can be withdrawn at any time. When everyone started withdrawing their money SVB had to sell the bonds, and they took a loss because interest rates have increased and the bonds they were selling were not longer worth as much.

[drawkbox]

The problem wasn't really the bonds, it was the influx of 3-4 times the money from 2019 to 2021 that essentially made SVB make basic and bad decisions chasing profit. The influx was essentially a pump and then they leveraged themselves to current markets not future even with a safe vehicle. SVB's whole premise was that interest rates wouldn't go that high, a very bad bet in high inflation.

The dump trigger wasn't even an action/attack it was the lack of additional influx of VC/private equity/sovereign money, probably mostly from foreign markets that slowed or stopped, that tripped them up.

Then larger investment groups filled with startups like Founders Fund and Union Square Ventures doing a margin call across all their funds/investments caused a big enough dump that it was over. The run was started at this point and days later the bank is over.

Ultimately this is SVBs fault, but also regulators because concentration like this where they are responsible for so many companies and one type of money VC/private equity, is an attack vector just sitting there. It wasn't wise for investment groups to run the bank either because now this harms companies across the board, but may also be a consolidation move, shaking out companies they don't back.

HBS is even realizing too much optimization/efficiency is a bad thing. The slack/margin is squeezing out an ability to change vectors quickly. This is happening from supply chain to credit to food and more.

The High Price of Efficiency, Our Obsession with Efficiency Is Destroying Our Resilience [1]

> Superefficient businesses create the potential for social disorder.

> A superefficient dominant model elevates the risk of catastrophic failure.

> *If a system is highly efficient, odds are that efficient players will game it.*

It is CLEARLY time for some anti-trust busting at the funding level.

[1] https://hbr.org/2019/01/the-high-price-of-efficiency

[delfinom]

Bonds weren't the problem. The financial strategy employed to use those bonds was the problem.

You can do the same thing to yourself. Take your life savings and emergency fund and put it locked up into 10 year treasuries bought direct from the treasury. Now go have an emergency. Good luck, have fun.

[denimnerd42]

you can transfer your treasuries to a broker and then sell them. i do see your point though. if your emergency is you need your life savings TODAY then yeah you'd have a problem. but you could probably find a source of credit while you sell.

[she11c0de]

> you can transfer your treasuries to a broker and then sell them.

Only to find out that because of the raised rates nobody wants to pay for them enough to cover your emergency.

[jschveibinz]

Just something to consider…

A casual look at the regional bank index ETF will show that starting about two weeks ago, the price started to steadily decline and then a sudden drop with SVB. I’m not sure if this decline is well correlated with the total market index over the same period, but if not, it suggests that some people “saw this coming” a couple of weeks ago and the other shoe may still need to drop. Was it just good analysis? Was there some whispering going on? If so, I hope the SEC is watching.

[markus_zhang]

This kind of things usually have someone or some people pushing from behind. I'm sure there are some sharks around the corner. Of course you have to have blood to attract sharks but human sharks can easily buy social media and newspaper to exploit small wounds.

This might be just the beginning of a large hunting campaign, let's wait and see.

[MrMan]

this bank stuck out as troubled far before this event

[twblalock]

Every sophisticated bond investor knows about duration risk. We expect banks to be sophisticated in that way. This was a really boneheaded investment to make at a time when interest rates were at historic lows.

[kqr2]

https://www.marketwatch.com/story/20-banks-that-are-sitting-...