But the thing that did SVB in was, overwhelmingly, Treasury bonds, due to duration risk and interest rates going up, nothing to do with the bank's more exotic practices.
The people running SVB were not stupid and were very aware of this risk, yet they chose to take it. There is a reason for this which we will find out in the fullness of time.
I really can't wrap my head around holding $500M earning almost no interest (>$10M annual) in an uninsured account. Why? It's not like they had that much in monthly expenses or income. Was it just more incompetence or as has been suggested in other posts were there "benefits" of doing this that may not have accrued to the corporation?
Of course it was the run of those giant uninsured depositors that caused the immediate cash. Of course it's not clear (had all depositors not been bailed out) that anyone withdrawing within the last 90 days would have not had their withdrawals clawed back... we'll never know. If that had happened, I think we would see a lot fewer flash runs.
edit: https://www.thestreet.com/banking/svb-collapse-roku-had-487-...
It's also weird that we expect large depositors to think about it. If we created the system today, we would never think it okay to just destroy people's money at scale. Large depositors get almost nothing (very low interest rate) in return for that immense risk.
It could have provided 5-10% of (their negative) net income.
Companies and individuals are not trying to invest in their bank when they open a checking account. Does it really make sense that they need to dive into their bank's financials?
We're not talking about a special fintech, we're talking about a MoneyMarket or Treasury account, which are higher interest and lower risk than a bank account, but you're limited to a withdrawal or two a week.
The MBS at least though is tradable and has a market price. Their own book of loans though is much larger and is subject to the same interest rate problems as their MBS and treasuries, and in addition to having lost value due to interest rate issues, it may now have default issues as well. Not a good combination.