I’d suspect they were already marginal and this was their only way to keep the books sound until they could solve their deeper problems.
If they did do what you said i.e. "spend $80 to buy $100's worth of treasury notes", then they wouldn't be in the conundrum they're in today. Because their cost basis in that case would be $80 and they could simply sell that treasury note for $80 and they wouldn't have a capital loss at all (in fact, they would be up since they earned coupon payments). It's only because:
1. 2021: they purchased low interest treasury notes before interest rates jumped
2. 2022: interest rates jumped faster than expected
This caused SVB incurring capital losses, which meant their assets to be worth less than their deposits.
If you are curious and want to visualize some of the changes on a graph, you can check out VFITX [1], which is a mutual fund that holds a mix of treasury bills, bonds and notes for an average of around 7-year duration.
-2021 Jan 1: $11.63/share
-2022 Jan 1: $11.12/share = 4.4% cap loss (before factoring in coupon payments)
-2023 Jan 1: $10.15/share = 12.7% cap loss (before factoring in coupon payments)
Forget the numbers.
The long term ones are advantageous on their books because they cost less to purchase than short term ones but still record at the full HTM value.
With stable and low demand on withdrawals, using that HTM value isn’t unreasonable since the bills are sure to mature and so the difference of cost between short and long term bills means their books look better for less. There’s predictable risk to the play, but they probably needed the extra bit of wiggle room on their balance sheet and felt it should be fine as long as interest rates stay low and deposits don’t pick up.
But of course neither of those was going to hold. And so (as you noted) their bills grossly devalued and their account holders changed borrowing and withdrawl patterns as the economy shifted. Both factors built into the risk fell through and they went from probably-marginal to downright-damned.
If a company buys low interest bonds (i.e. interest is yield) in a market where interest rates are going up, at some point the cash rate will exceed their bond yield and at that point the bond price drops to match the current interest rate.
Why this happens is when the interest rate is above the bond yield, no one will purchase the bond at the original price, as they can get a much better return in the overnight cash market.
That means the price of the bond falls to a point where the bond yield now matches the cash rate plus some margin for any future risk. That lower price gives the asset it's true value.
So as the cash rate continues to rise the bond price continues to fall and without doing anything, SVG finds itself bleeding hundreds of millions in asset value, with no end in sight.
That then creates the panic and the rest is history.
This is why bond investors who aren't yield chasing would never overleverage into these.
At the _very_ least the fed announced interest rate rises in March of 2022 (with updates in June, Sept, Nov/Dec) and SVB could've worked out some kind of short-term credit deal with a JP Morgan type last year. Instead they did nothing but sat on assets which they knew would drop over 20% market value in a year while not ensuring short-term liquidity.