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They had too much cash in 2020 and 2021.

They suddenly needed cash in 2023, but the deposit train had run dry due to the general slowdown among their customer base, at which point they were forced into selling the assets they acquired in 2020-2021 and locking those losses.

Had they attracted enough new deposits, they could've let their long-dated portfolio run its course. Maybe even sell parts of it a few years from now if the rates went back to 0% territory, making those long-term bonds attractive again.

They weren't buying toxic assets or anything. Chase, BofA and Wells Fargo own long-term debt as well, just not to the extent SVB did.




Relevant graph of assets and deposits:

https://i.imgur.com/d5b1CQV.png


The scheme of getting new depositors to pay out existing depositors is better known by another name: a Ponzi scheme.


Seriously, when you look into how banks are run, they really do start to begin looking like legal Ponzi schemes. https://www.bankrate.com/banking/cds/cd-ladder-guide/

They take your deposits, use a bit to pay other people's withdrawals, promise an unrealized gain to money held in your account that they might not be able to pay if everyone pulls out their cash at the same time...


The defining characteristic of a Ponzi scheme is that there is no underlying investment.

Most banks make sound underlying investments, but even in SVB’s case there were investments, they were just bad.




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