The Fed raised rates, making all long-term debt decline in value.īut accounting rules let SVB book mortgage securities as "held-to-maturity" (HTM), avoiding a hit to book equity. #2: Direct loans: $74B (55% short term loans to VCs & PE) #1: Mortgage backed securities: $82B (83% residential) To generate positive NIM, banks make long-term loans at higher rates than they pay on deposits.īefore the issues, SVB held $212B of assets against $200B of liabilities - a paper equity cushion of $12B (5.6% of assets). The delta between interest on loans and interest paid to depositors is the 'net interest margin' ("NIM") - the core metric of bank profitability.Īnd the delta between assets and liabilities is the bank's equity - the core metric of bank safety. Silicon Valley Bank unit economics clarify what happened.īanks take deposits and use them to make loans.
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