If the SVB bankers were "yield chasing" surely there were more effective ways of doing so at approximately the same risk.
Exactly. the 1-year notes had zero interest rate risk, and almost no yield. The 10-year notes offered very high interest rate risk (remember: rates were almost zero) and barely-more-than-no-yield.
Choosing 1.5% return at high interest rate risk vs. 0.5% return for low rate risk. Either way you are getting almost nothing, but one has the risk of putting you into a liquidity crisis. In a sense you're willing to risk it all to squeeze an extra 1%, It is the absolute definition of yield chasing.
>and apparently have lots of mechanisms by which you can borrow against them should you need to in almost any non-runlike scenario.
If your $1000 bond is worth $1005 at maturity, and it has dropped to $990 and you want to borrow from me against the bond, I will charge you at least $15 in this scenario. That's slightly oversimplified, but lenders (other than the Fed/QE) will loan at a rate where you're essentially locking in a loss, because they have what you need to offset your risk you failed to hedge against (liquidity).
>If the SVB bankers were "yield chasing" surely there were more effective ways of doing so at approximately the same risk.
Not that I am aware of, at that scale of money. There's also high-risk lending to borrowers (which SVB did) but companies might borrow $10M, $20M, maybe $100M. When you're talking $50-100B, Bonds are the only game in town.
30 year T notes, for example, seem to have been at double the 10 year notes in return at this time. Why not go for those if we're assuming greed as the driving factor here?
It really does seem like a ludicrous bet to be so invested in long term bonds at a moment of historically low interest rates. That’s why it reads like greed. SVB seemingly did very little to reduce the risk on that absurd bet.
> There are tons of places to put money that are riskier, even billions, that would have yielded better returns
That there were many riskier alternatives doesn’t mean that there were no safer alternatives. (And by the way most of the riskier alternatives wouldn’t have actually yielded better returns in the last couple of years.)
Speculation that interest rates would go down and longer duration bonds would appreciate more?
Avoiding the hassle of managing a short-term portfolio to have more free time?
Taking risk for the sake of thrills?
Your example from other comment with 30y maturities is actually nice example - that would be "way more greedy".
Basically as long as your bet on higher yields and bigger risks does cause your bank to fail, you were too greedy.
I am not an expert, but the explanations given make sense to me.
It sounds like this was the "right decision" in retrospect. If so much startup capital has been deposited into your bank that you can't safely steward it while turning a profit, it seems the only answer is to let that money go elsewhere.
Zeltice started this thread by asking, "why is this greed and not just incompetence?" It sounds like both. The corporate officers were stuck in a mindset of "we must keep growing and turning a profit" (greed) that they took the only option to do so, which led us to today (incompetence).