31, SVB’s balance sheet showed securities labeled “available for sale” that had a fair market value of $26.1 billion, which was $2.5 billion below their $28.6 billion cost. SVB’s debt securities declined substantially in value last year, but in ways that weren’t always reflected in SVB’s earnings and shareholder equity, as noted in a Wall Street Journal article. These notes will all pay their coupon, but if they need access to that capital, they can’t hold the note to its term length - they must sell it off and use that capital to return deposits. The issue here isn’t that they mispriced the risk of default on their notes and won’t get paid - it’s that the mark-to-market on their holdings which they were forced to acquire in 2021 is severely in the red. Soon after, the Federal Reserve began its rate-hiking campaign. Treasurys and other government-sponsored debt securities. The bank’s assets and deposits almost doubled in 2021, large amounts of which SVB poured into U.S.

SVB, the parent of Silicon Valley Bank, late Wednesday said it would book a $1.8 billion after-tax loss on sales of investments and seek to raise $2.25 billion by selling a mix of common and preferred stock. This seems to be the problem Silicon Valley Bank ran into : But rates rising was generally predictable, and as newer issues hit the market with higher yield, the value of the older, lower-yielding notes takes a hit. A tricky problem to solve is that deposits are not exactly optimally distributed - if a flood of money comes in during a low-rates environment, you have to find some yield on it, else you’re just going to lose money on operations. Generally, the larger an institution is, the easier it is to avoid a bank run - that being said, those institutions are likely to be “too big to fail” and have minimum capital requirements to prevent worst-case scenarios. Lending requires striking a fine line between generating a yield on deposits and preserving liquidity to return them.

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