The Rapid Collapse of the 16th Largest Bank in America
Silicon Valley Bank was set up in 1983 to service the burgeoning tech ecosystem taking root in the Valley. The bank invested the bulk of its deposits in securities. It adopted a two-pronged strategy: to shelter some of its liquidity in shorter duration available-for-sale securities, while reaching for yield with a longer duration held-to-maturity book.
The trouble is that when rates started to go up, mortgage assets got hit hard. The duration of Silicon Valley’s HTM portfolio extended to 6.2 years, as at the end of 2022, and unrealized losses snowballed, from nothing in June 2021, to $16 billion by September 2022. That’s a 17% mark-to-market hit.
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By Marc Rubinstein
Published on March 11, 2023