[BostonCard]

My take is that it would not have mattered, and this is just an attempt to find a convenient political scapegoat. The reality is, that Congress passed the largest increase in federal spending on record, which created inflation. The Treasury and the Fed both tried to tell the public that inflation was transitory for a year. Relying on that, SVB (and other banks) bought the "safest" investment possible... 10-year Treasuries. When the Fed finally started raising rates, at the fastest pace ever, those assets became worthless. A liquidity crisis forced SVB to sell what assets it could, but a large amount of 1.25% yielding Treasuries is now worthless and can't be sold. People in Silicon Valley smelled something was up, and that deposits were vulnerable and started a bank run.

10-year treasuries are only safe if you plan to hold to maturity; otherwise they are susceptible to interest rate risks.  Given that 10-year treasuries were at all-time low yields, it might have been prudent to worry that their values might fall (obligatory explainer that yields and prices move in opposite directions).  Even if inflation had proven to be transitory, it seems likely that interest rates were going to rise at some point.  Remember, the federal reserve raised the federal funds rate from 2016 to 2019 despite inflation remaining at or below the 2% target.  None of this is a problem if you hold the treasury to maturity, but a bank probably needs to be prepared to sell at least some of its assets to refund customer deposits, in the event of an event that is exactly what happened.

Dodd-Frank prior to the EGRRCPA would have required SVB to be subjected to a stress test.  Among the scenarios modeled by the stress test are changes in interest rates:

Six measures of interest rates: the rate on 3-month Treasury securities; the yield on 5-year Treasury securities; the yield on 10-year Treasury securities; the yield on 10-year BBB-rated corporate securities; the interest rate associated with conforming, conventional, 30-year fixed-rate mortgages; and the prime rate.

https://www.federalreserve.gov/publicati...narios.htm

So yes, the Dodd-Frank stress test would have identified that SVB would need additional capitalization in 2022 because it would have failed the stress test scenario where 10-year treasury yields rise.

BC

[BostonCard]

My take is that it would not have mattered, and this is just an attempt to find a convenient political scapegoat. The reality is, that Congress passed the largest increase in federal spending on record, which created inflation. The Treasury and the Fed both tried to tell the public that inflation was transitory for a year. Relying on that, SVB (and other banks) bought the "safest" investment possible... 10-year Treasuries. When the Fed finally started raising rates, at the fastest pace ever, those assets became worthless. A liquidity crisis forced SVB to sell what assets it could, but a large amount of 1.25% yielding Treasuries is now worthless and can't be sold. People in Silicon Valley smelled something was up, and that deposits were vulnerable and started a bank run.

10-year treasuries are only safe if you plan to hold to maturity; otherwise they are susceptible to interest rate risks.  Given that 10-year treasuries were at all-time low yields, it might have been prudent to worry that their values might fall (obligatory explainer that yields and prices move in opposite directions).  Even if inflation had proven to be transitory, it seems likely that interest rates were going to rise at some point.  Remember, the federal reserve raised the federal funds rate from 2016 to 2019 despite inflation remaining at or below the 2% target.  None of this is a problem if you hold the treasury to maturity, but a bank probably needs to be prepared to sell at least some of its assets to refund customer deposits, in the event of an event that is exactly what happened.

Dodd-Frank prior to the EGRRCPA would have required SVB to be subjected to a stress test.  Among the scenarios modeled by the stress test are changes in interest rates:

Six measures of interest rates: the rate on 3-month Treasury securities; the yield on 5-year Treasury securities; the yield on 10-year Treasury securities; the yield on 10-year BBB-rated corporate securities; the interest rate associated with conforming, conventional, 30-year fixed-rate mortgages; and the prime rate.

https://www.federalreserve.gov/publicati...narios.htm

So yes, the Dodd-Frank stress test would have identified that SVB would need additional capitalization in 2022 because it would have failed the stress test scenario where 10-year treasury yields rise.

BC