[notch898a]

Demand deposits can be immediately be recalled, so where exactly do you suggest they park it? In the central bank -- no bueno they've denied banking license for narrow banking. Margin lending that allows recall at any moment? I can think of some options but frankly I'd rather have my money in a bank that over-extends themselves on treasuries than most the alternatives. At least I'd most likely get 90+% of my money back eventually.

Only retroactively in a bank run are you really able to see just what duration and what amounts were the limit.

[maxbond]

It's not that they shouldn't have bought treasuries, it's that they shouldn't have bought such long dated treasuries, and if they did, they should have hedged against interest rates, and if they didn't, they should have realized the loss when it was smaller. But they did none of those things and it was fatal to them.

The Fed kept making it clear that it was raising rates, and it seems like SVB just slipped quietly into that good night without lifting a finger to save itself. Which is bizarre and confusing and there must be more to the story (and details are coming out, like the risk manager role remaining open for nine months), but it does seem like crazy risks were taken. But not in pursuit of additional gains, like we are used to seeing, but it's looking more like negligence or a misunderstanding of their position.

[reducesuffering]

They didn't buy treasuries, they bought mortgage-backed securities.

[maxbond]

You can `s/treasuries/mortgage-backed securities/g` into my comment and it doesn't change much, but my understanding is that they had a lot of treasuries (not to the exclusion of having MBSs).

> To fund the redemptions, on Wednesday Silicon Valley Bank sold a $21bn bond portfolio consisting mostly of US Treasuries.

https://www.theguardian.com/us-news/2023/mar/10/silicon-vall...

[reducesuffering]

They had very few Treasuries. Latest balance sheet from 2 months ago had $1B Treasuries compared to $91B MBS and $212B assets. https://www.cnbc.com/quotes/SIVB?tab=financials

All your link shows is that Guardian, Reuters, and others have equally as bad reporting as commenters here, just parroting each other constantly...

SVB's actual announcement says "Additionally, earlier today, SVB completed the sale of substantially of its available for sale securities portfolio. SVB sold approximately $21 billion of securities, which will result in an after tax loss of approximately $1.8 billion in the first quarter of 2023."

I haven't seen any evidence that there were substantial Treasuries sold, I just see MBS on their balance sheet.

[sdfghswe]

> Only retroactively in a bank run are you really able to see just what duration and what amounts were the limit.

Exactly, so don't lock it up. Glad you agree with me.

[notch898a]

So put it where? Narrow banking is illegal by virtue of denying the banking license. You're basically left with what, something like recallable loans/margin? What are the other options?

[tripletao]

Put it in bonds of whatever duration the bank chooses, but require sufficient equity that the shareholders will bear the loss and not the depositors?

Interest rates didn't increase in a single step. If the SVB had been forced to recognize their losses on a continuous MTM basis, then they'd have been forced to raise capital (or liquidate if they couldn't) by late 2022, when they were undercapitalized but not insolvent. The shareholders might still have been zeroed, but the depositors would have been fine.

In fact, the SVB designated those bonds as held-to-maturity, which allowed them to avoid reporting the loss, leaving them adequately capitalized for regulatory purposes despite being MTM insolvent. That accounting treatment doesn't change the actual economics though, so they still blew up.

[selectodude]

>Put it in bonds of whatever duration the bank chooses, but require sufficient equity that the shareholders will bear the loss and not the depositors?

But that's literally what they did. They put it in 10 year treasuries that they had to sell for 87 cents on the dollar because every "thought leader" in Silicon Valley had the same idea at the same time and triggered a bank run on their own bank.

Everybody who has deposits will get 100 percent of their money back and everybody who holds equity in SVB will be (mostly) wiped out.

[tripletao]

The depositors are getting 100% of their money now because the FDIC has guaranteed all deposits, including deposits in excess of the usual $250k limit. Any shortfall will be socialized among all participating banks. The SVB's shareholders didn't get bailed out, but their depositors absolutely just did.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

If the SVB had been forced to recognize its loss sooner, then this government bailout wouldn't have been necessary. Perhaps they'd have succeeded in raising more capital, and survived as an operating business; or perhaps their shareholders would still have been zeroed and their creditors would have seen a partial recovery. The depositors would have been fine either way though, no government bailout required.

[selectodude]

The depositors are getting 100% of their money because the fed is lending against their assets at par. [1] The FDIC can be confident that they'll be able to make everybody whole because their assets exceed their liabilities. The Fed is going to hold the assets to maturity and get paid back by the Federal Government. "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." is legalese, nothing more.

[1] https://www.federalreserve.gov/newsevents/pressreleases/mone...