What went wrong with SVB's investment securities? Why it matters for markets and the Fed's inflation fight.
Silicon Valley Bank’s collapse a week ago Friday has exposed a big problem with “safe” securities bought with government guarantees during the pandemic.
SVB Financial SIVB, -60.41% a week ago disclosed a sudden sale of about $21 billion of high-quality, rate-sensitive mortgage and Treasury securities at a $1.8 billion loss, which caused customers to flee with their deposits and ultimately led to the bank’s failure on Friday. U.S. banks borrowed almost $165 billion from the Fed in the past week after the failure of Silicon Valley Bank, according to data released Thursday.
‘These are not toxic’ After the Fed kept credit flowing and cheap for the most part of the past two decades, last year it began to raise interest rates aggressively to fight inflation that reached its highest level in 40-years. “They are not toxic,” said Kris Mitchener, and economics professor at Santa Clara University, and an expert on the history of financial crises.
“That’s the puzzle,” he said. “Because bank management should be concerned about interest-rate exposure and duration risks. That’s something I teach my undergraduates.”
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