> The big losses experienced by the bank are directly related to the surge in interest rates over the past year, as the company's US Treasury holdings were bought at a time when interest rates were still relatively low. Bond prices fall as yields rise.
https://markets.businessinsider.com/news/stocks/silicon-vall...
More general context:
- Banks are required by law to buy US Treasuries (UST). This regulation came about after the GFC.
- UST prices fall as interest rates rise
- the fall of UST prices in the last year is abnormally abrupt and deep
- banks are not required to "mark-to-market" their UST holdings if they plan to hold to maturity
- cash crunches can cause banks to sell UST before maturity, turning unrealized losses into real losses
- SVB joins Silvergate as a previously high-flying tech-related bank suffering a cash crunch and forced to liquidate bond holdings at a loss
It's hard to judge the scope of the problem that Silvergate and SVB might point to. What's clear is that unrealized UST losses on bank balance sheets can surface very quickly and lead to very ugly outcomes.