I'm getting tired of the "those Treasury bonds they bought are completely safe, if they just wait 10+ years until maturity, they will get 100% of their principal back" narrative. There are MANY different types of risk. Credit risk is but one type, and that narrative tries to convince people that it is the ONLY type of risk. In this example, you have both interest rate risk (price of an existing bond moves inversely to interest rates) and maturity risk (long term assets funded by short term liabilities). Risk can be hedged, and it is prudent to do so, but hedging costs money which eats into profit, so in the case of SVB they made a conscious decision to abandon most of their hedges a year or so ago. I suspect that over the course of the next year we'll see more cracks emerge in the financial system, additional financial institutions fail, and a new narrative that will have to be created.
> in the case of SVB they made a conscious decision to abandon most of their hedges a year or so ago.
Just as everyone started talking about inflation coming back? Just as it began showing up in the actual data? That's when they deliberately decided to stop hedging? That's insane. "Deserves to lose" is the only non-profane way I know of expressing how incredibly unwise that decision was.
And maybe how immoral. They may have made that decision then because everyone could see inflation coming, and therefore the price of hedging the risk went up. If so, they threw away the bank (and the stockholders' money) for one year's increased profit. Madness.
