When did SVB insiders begin to realize they were in trouble?
Just because they didn&#x27;t have a Chief Risk Officer doesn&#x27;t mean they didn&#x27;t have a risk management team. They MUST have had an Enterprise Risk Management team whose sole responsibility is to look at risk like this. The main role that the CRO would have is to pound on desks that something had to be done.<p>The biggest problem SVB had was a mismatch of duration between assets and liabilities. As interest rates started jumping, they should have acted on this by hedging or some other mitigation strategy. But this article&#x27;s insinuations that people must have known as early as 2021 is ridiculous. The first rate hike was March 2022, and the subsequent one in May 2022 was already after the CRO ended her term.<p>For SVB to have problems, it needed 2 distinct problems: 1) interest rates had to rise and 2) customers had to start withdrawing funds. #1 started in March 2022, but I think #2 probably happened later than that. I think funding probably dried up Q3, which probably took startups as a surprise which forced them to burn more cash. By then interest rates started to ratchet up by 75 basis points at a time and the stock market hit their lows in October.<p>One possible scenario is that the ERM team flagged all this throughout 2022, but the CFO couldn&#x27;t stomach the cost of hedging their portfolio and kept hoping for a reprieve or reversal.<p>Regardless, I think it&#x27;s definitely possible that they knew something was wrong in Q3-22. The fact they didn&#x27;t act until end of Q1-23 by selling off all their AFS assets in desperation is a evidence to me that they were holding out for hope and couldn&#x27;t bear it anymore until the new CRO forced it. It doesn&#x27;t seem conceivable to me that they had an entire ERM team that sat around with their thumbs up their asses not understanding the problems they had in the back half of 2022.<p>EDIT -<p>There&#x27;s 3 other things I didn&#x27;t think of but I just skimmed through their 10K.<p>1) They had the bulk of the HTM in Mortgage Backed Securities. In a falling rate environment, customers refinance, which means those loans get paid off, and their HTM asset gets converted into cash, which they need to redistribute back into another security. They could have used that cash to pay off depositors withdrawing their cash. But they could As rates go up, all the customers stopped refinancing, customers stopped buying new houses, and SVB wasn&#x27;t getting those mortgages paid off, which probably cut into their cash.<p>2) Yes, startups must have been burning through cash, but I also how many of those customers pulling their funds out were just buying US treasuries or moving them into high interest products outside of SVB. This might have been a factor. I myself started buying US Treasuries for over half my portfolio now that 90-day T-bills are over 5%.<p>3) The 10K was filed on Feb 24, and SVB dumped their AFS portfolio on March 9. That&#x27;s less than 2 weeks. There&#x27;s no way that the auditors shouldn&#x27;t have known about this sale, and they would have raised a huge stink if they knew. So either they were hiding all of this from the auditors, which sounds like fraud or something very acute occurred during those 2 weeks but I can&#x27;t imagine what that is.<p>I&#x27;m going to be extremely interested to hear the reports from the inside because I&#x27;m sure people in SVB finance do not want to get pinned with the blame of this.<p>EDIT 2:<p>Found it. Moody&#x27;s threatened to downgrade which forced the sale of AFS. So that explains it. So maybe everyone thought everything was okay and the surprise threat of the downgrade is what caused the house of cards to fall.<p><a href="https:&#x2F;&#x2F;www.cnbc.com&#x2F;2023&#x2F;03&#x2F;11&#x2F;silicon-valley-banks-demise-began-with-downgrade-threat.html" rel="nofollow">https:&#x2F;&#x2F;www.cnbc.com&#x2F;2023&#x2F;03&#x2F;11&#x2F;silicon-valley-banks-demise-...</a>