Why would SVB keep so much of its assets in fixed rate instead of floating-rate debt?
Can someone explain to an uninformed undergrad why SVB lent out so much of its deposits in the form of fixed rate, long duration debt instead of floating rate debt like many of its peers (both regional banks and BBs) did? Also, why go for treasuries at all during the Covid-19 economic boom when you could've invested your money in decent quality corporate debt for higher yields and even lowered risk of default given the influx of cheap money? Thanks in advance.
bump
You aren't uninformed. BoA had the same question:
Thanks for sharing this! Do you mind breaking down what SVB is saying in your screenshot?
This is mostly uninformed speculation, but given the speed at which SVB's deposits grew, it wouldn't surprise me if they primarily bought Treasuries and Agency MBS (both of which have a lot of duration) because they were the easiest thing to source in a short amount of time and have no credit risk.
Ideally, you would diversify your portfolio a bit more, but that requires more time/expertise than they may have had. Also, given the types of risk they were taking elsewhere, they may have wanted to minimize the amount of credit RWAs they were generating on their HTM/AFS portfolios.
Alternatively, I'm not sure what their cost of funds looked like circa 2021, but if it wasn't ~zero, L+50 floaters (or whatever highly rated floating-rate paper was paying at the time) might not have seemed super attractive from a NIM perspective. Obviously, that turned out to be shortsighted (if that was part of the thought process), but hindsight is 20/20.
Placeat esse placeat aut inventore aperiam tempora autem. Sit quo ut itaque explicabo. Ab repudiandae animi et quae qui ut iure eveniet.
Debitis qui ea voluptatem officia dignissimos. Eligendi perspiciatis quia et. Itaque unde itaque ut aliquam ut.
Eos pariatur officiis et autem fugiat tempore. Vel reiciendis nobis nihil adipisci deleniti voluptate. Perferendis temporibus ad quia amet voluptas. Incidunt quis blanditiis reprehenderit quis officia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...