[rvnx]

The problem is that they invested in 10 years duration bonds, instead of 0-3 months or 1 year duration.

This essentially means, that if interest rates raise, then temporarily (the time of the duration of the bond) the bond may be worth less because there are new bonds which are more attractive to the investor.

Once the bond matures, then the full sum is returned to the holder of the bond.

[PeterisP]

The bond is worth less not temporarily but permanently. The (low) market price of such a bond is appropriate - it might rise (if the current interest rates fall), but it might as well fall even more (if the current interest rates rise even higher). Sure, in nominal dollars you get the 'full' amount back after xx years, but a 203x-dollar is worth less than 2023-dollar, and the market price of that bond reflects the markets' current best estimate on how much less that future dollar is worth.

You can't make whole the current depositors by saying that they'll get the same quantity of 203x-dollars (because you owe them 2023-dollars which are worth more), you can't make whole the current depositors by trading the future claims on these 203x dollars (i.e. bonds) to someone else because the price you can get is not enough to make them whole; and you can't make whole the current depositors by paying them back in year 203x their dollars with market-rate interest because you don't have enough assets to cover that market-rate interest, only the low, low interest that SVB fixed last year or before.

[pseudo0]

That assume that the bank can keep their depositors while offering uncompetitive interest rates on deposits. For example, a bank that bought 3-12 month t-bills could offer depositors 4% interest on their savings accounts and still make a profit. Why would anyone leave their deposits with SVB for the next ten years if they can only afford to offer 1.5%, because they made a bad bet on long duration bonds?

Sure, banking has a fair amount of inertia, but eventually people realize that they are leaving FDIC insured money on the table.

[toast0]

> Why would anyone leave their deposits with SVB for the next ten years if they can only afford to offer 1.5%, because they made a bad bet on long duration bonds?

Chase is still offering 0.01% on savings accounts, and somehow has deposits. 1.5% is generous compared to that, even though it's much less than you can get with a little shopping around.

[dragontamer]

Sure, but $46 Billion left the bank on Thursday.

The bank run already happened, so the bank has to sell those bonds for a loss to meet its obligations to their depositors. Because of the interest rate changes, they are forced to sell those 10Y and 30Y bonds for a 20% loss (or greater).

As such, the bank is underwater. FDIC is looking for a buyer who is willing to lose a little bit of money in the short term, but maybe gain some customers in the long term.

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There's no time to wait 10 Years. The bank needed the money 3 days ago.

[zhte415]

The interest rate is the opportunity cost of investing elsewhere. Why would someone buy a bond at a 1% discount when they can buy the exact same bond at a 2℅ discount?

Aside from not making large unmatched unhedged yield curve bets, not marking portfolio prices to market was a problem for SVB.