Interview
Why did SVB collapse?
- SVB allocated over $90 billion to long-dated securities, primarily MBS with maturities exceeding 10 years, with a declared intent to hold them as "held to maturity" without selling for liquidity needs.
- The investment strategy reflected a significant bet on the sustainability of low interest rates and continued tech sector momentum.
- FDIC data showed aggregate bank unrealized losses on securities were elevated at $620 billion in Q4 of the previous year.
- Unrealized losses on securities during the entirety of 2022 were materially higher than in any other year of the preceding 15, exceeding those years by multiples of three to six.
- While not every bank held a "huge pile of unrealized losses," analysis is required to determine the breadth of these losses across the banking sector.
- SVB likely could have absorbed investment losses had depositors not simultaneously withdrawn funds, a scenario that remains speculative.
- Although altering the timing of capital raise announcements might have changed venture capital community communication, it is uncertain if such changes could have prevented immediate deposit outflows.
- Depositor psychology created a scenario where a "non-zero chance of risk" was perceived, making it probable that funds would be withdrawn rather than retained.