An explainer on what is going on with Silicon Valley Bank:
- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021.
- As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!) in mortgage backed securities (MBS) with these deposits for their hold-to-maturity (HTM) portfolio.
- 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%.
- The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVBs MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield.
- This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually.
- However, yesterday afternoon, SVB announced that they had sold $21bn of their Available For Sale (AFS) securities at a $1.8bn loss, and were raising another $2.25bn in equity and debt. This came as a surprise to investors, who were under the impression that SVB had enough liquidity to avoid selling their AFS portfolio.
https://twitter.com/jamiequint/status/1633956163565002752....as philipma1957 said on other occasions, seems bonds continue to damage Bitcoin price...
if my retard brain understands it correctlyyou misunderstood, sorry.
It is just that moron bank (and maybe many more) used large cash deposits from "smart" investors taking profits at the end of 2021 to purchase some bonds (MBS) that had long duration, but tiny yield.
Because yield is now much higher, those bonds were at a loss on their books.
Bottom line: if you have 10/1 loans to deposits ratio, your "book" would be screwed with a fast move in interest rates.
personally, i think that Sivergate/SIVB is something like hedge funds blowup in Jan-Feb 2007.
Then a "Bear" and then "Lehman"...maybe not to the same degree, but enough to do some "damage".
Bitcoin has NOTHING to do with this, it's just being thrown out "because crypto" kind of Wall Street thinking.
Smart money accumulates.
Don't apologize. Thanks for explaining. I see.. it's their books. but still, wasn't their problem the increase of yield in bonds that philip has been indirectly talking about, when he was cheering for i-bonds?