Why Banks Buy Bonds?

New regulations were put in place after the global financial crisis of 2007-2008. Banks had to have enough assets that could be quickly sold on hand to meet a stressed outflow of deposits. The new regulations treat government bonds, high quality liquid corporate bonds and certain mortgage bank securities exactly the same as reserves at the central bank. As interest rates and credit spreads change these liquid investments will change in value giving the bank more profit and loss volatility than they would typically want to have. Silicon Valley Bank decided to do with a large portion of their portfolio.