[tomato_123]

Long-duration fixed income assets go down in value when interest rates rise. This is true whether they're long-dated treasuries or agency MBS. Banks that finance with short term liabilities and own long-term assets are risky because of this: when rates rise the value of their assets declines while the value of their liabilities remains mostly the same.

This is a very different phenomenon than what happened in 2008. In 2008, banks owned a different kind of MBS that was poorly-underwritten, poorly documented, and truanched in a way that made their value extremely sensitive to various model assumptions. This made them extremely illiquid, meaning that if you tried to sell them in volume you would have to sell at a large discount relative to the value of the expected discounted cashflow of the security. (This is not true of 2023 MBS. These MBS are a totally different species. In 2023 rates rose, the value decreased, but we can be extremely certain of the value and they are extremely easy to sell at little discount to this value).

Contagion happened in 2008 because when there was a run on bank A, bank A had to sell its illiquid MBS at a large discount. This reduced/made uncertain the value of bank B's similar MBS, which triggers a run at bank B. In that sense, the bank A run causes the bank B run. There's no spillover mechanism in this 2023 scenario: SVB's selling its treasury or MBS portfolio doesn't meaningfully impair some unrelated bank's assets. To the extent that some unrelated bank is in trouble, it's because they face correlated macro shocks, not because there's a causal spillover.