If there is a run, then selling is actually the worst thing to do because theoretical losses become irreversible actually losses. It’s highly likely interest rates will go down in a year or two but.
The “demand” in “demand deposit” accounts means that selling isn't optional as the cash runs out in a run.
A bank is not an unregulated crypto exhange that can just impose arbitrary withdrawal limits to protect the absence of liquidity.
> If there is a run
If there is a run, they become forced sellers, because they don't have enough cash on hand to meet withdrawals. That's the whole story. They must prevent a bank run.
You lend out on shorter terms than you figure your depositor will need and pray they don't need it back. If they all do though, you're screwed.
It's statistical multiplexing as applied to piles of other people's money.
[EDIT: corrected "limiting withdrawls" to "preventing limiting withdrawls"]
No, the inverse. Banks are required to keep a % of deposits available in cash, another % in easily sellable assets, etc (lots of regulations here, esp post 2008 crisis, though the US exempted community banks from the new rules, which contributes to the current crisis) in order to reduce the risk that a bank run puts them out of business.
But a big run can exceed those safeguards, as appears to be the case here. The bank can’t offload enough investments to meet withdrawal demands.
A demand deposit or checking accound has little or no notice. A money market may take a day or so for underlying assets to be exited. CoD's and such typically don't even have the option for withdrawal. You just have to wait for maturation.
Point is, you know this when you open the account. They should take great pains to ensure you understand the instrument... And to manage things appropriately, which apparently, SVB did not.
This is why commercial banks tend to not hold on to the loans they originate any more, and instead sell them to funds. There is correlated risks for the banks, where their assets become less valuable at the exact time they need to sell them. Banks don’t like to hold mortgages for this reason.