The Risk of Arbitrage

Silicon Valley bank, like all the other banks, only paid depositors about 0.2% on their savings. The government thought it was making a profit because here it was paying depositors at a little rate and it could get 1.8% on government bonds. When rates go up to 4%, obviously, that means that the value of the old government security, 30-year bond, falls to maybe 65 cents on the dollar. They had to take a big loss because under the rules of reporting, banks report what they paid for the assets, not what the assets actually work on the market. That's why the treasury has said we will bill you up. We'll take over