Despite being a near-religious Levine reader, I somehow missed Friday’s post and wrote this post without it. (In my defense, he said on Thursday that he’d be off Friday, then came back to talk about SVB.)
Anyway, Matt has a good phrasing of the unusual weirdness in SVB’s assets, for a bank:
Or, to put it in different crude terms, in traditional banking, you make your money in part by taking credit risk: You get to know your customers, you try to get good at knowing which of them will be able to pay back loans, and then you make loans to those good customers. In the Bank of Startups, in 2021, you couldn’t really make money by taking credit risk: Your customers just didn’t need enough credit to give you the credit risk that you needed to make money on all those deposits. So you had to make your money by taking interest-rate risk: Instead of making loans to risky corporate borrowers, you bought long-term bonds backed by the US government.
https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run is the Levine article for anyone else interested in it.
Despite being a near-religious Levine reader, I somehow missed Friday’s post and wrote this post without it. (In my defense, he said on Thursday that he’d be off Friday, then came back to talk about SVB.)
Anyway, Matt has a good phrasing of the unusual weirdness in SVB’s assets, for a bank: