Thread by @Chandankr2018

As of now, everyone is aware that #SVB shut down its operations.

The reason was that the bank invested depositors' money into long-term bonds. Those bonds' value dropped as interest rates have been rising causing them to lack enough asset backing to match the amount of...contd.

depositor money in the bank.
Why did bond value drop as interest rates increased?
Generally, bond price and interest range have an inverse relationship.
Because when the interest rate goes up new bonds are likely to be issued with higher coupon rates,

making the old bonds less attractive unless can be purchased at lower prices.

And when People asked for their deposit and #SVB didn't have enough so that resulted in a #Bankrun.

From Bank's POV, They invested in conservative assets like bonds and went under like any other bank do.
But SVB didn't hedge their bond portfolio against the interest rate at all.

This was the fault of the bank side.
Because Banks had huge investments in Mortgage Backed securities roughly around 78% so most of their risk came from interest rate risk.

Conclusion -
In simple words, SVB was swimming naked in the pool when the water level of the pool came down SVB was exposed.
Wonder how many of these banks are swimming naked in the pool thinking everything is okay.