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by rcme
1198 days ago
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I think you’re simplifying things too much. The issue wasn’t that SVB couldn’t foresee higher interest rates. There were a number of other issues, almost all caused by the Fed and the federal government: 1. Covid stimulus vastly increased the amount of cash at the bank. 2. Artificially low interest rates plus the cash infusion caused inflation. 3. While inflation was beginning, the Fed somehow got it in its head that inflation was “transitory” and rate hikes weren’t needed. 4. The Fed waited too long to raise rates, so they needed to spike rates as quickly as possible once they changed their opinion on inflation. Basically the government gave banks hundreds of billions of dollars to lend via stimulus spending, and then made those loans worthless by spiking interest rates less than a year later. Whose fault is that really? |
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Becoming insolvent because the rates reached ~5% when history has had far greater rates is in fact an issue for SVB. https://tradingeconomics.com/united-states/interest-rate
The federal reserve has dual mandates for both full employment and to have stable inflation. These mandates are in many ways opposed to each other. Putting the blame on the fed in hindsight is always easy, but unlike an institution with such a mandate SVB failed at one of the most fundamental parts of being a bank.