SVB announced Wednesday it had sold $21B of liquid assets (from bucket #3) at a 9% loss and would raise money to cover the loss. The wipeout of the bank's tangible equity cushion was concerning.īut the losses were visible to anyone watching SVB closely. So even at that point, losses had wiped out the $12B equity cushion.

In a December footnote, however, it disclosed the HTM book had $15B of 'unrealized' (i.e. 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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