I agree with you about G-S, all it did was separate the Investment banking from regular banking. That doesn't make it boring at all!
But I just can't wrap my head around the decision making process at SVB. I wouldn't expect to be paid high 6 figures to run risk at a $200B bank and I knew not to be in long bonds. hn_throwaway_99's comment about the legality of hedging their HTM book makes me wonder if they just reclassified it to reduce their costs in 2022. (Only credit and servicing risks can be hedged)
And that gets to the real issue. Current regulations actually encourage rate risk at banks <$250B, because you can either pay for insurance or just mark it HTM. The majors don't have this choice and have to eat the extra cost.
It is not that way in EU banking due to the Basel framework and IRRB. At least they have reporting standards and don't allow more than 15% to be at risk in the Supervisory Outlier Test (SOT).
But I just can't wrap my head around the decision making process at SVB. I wouldn't expect to be paid high 6 figures to run risk at a $200B bank and I knew not to be in long bonds. hn_throwaway_99's comment about the legality of hedging their HTM book makes me wonder if they just reclassified it to reduce their costs in 2022. (Only credit and servicing risks can be hedged)
And that gets to the real issue. Current regulations actually encourage rate risk at banks <$250B, because you can either pay for insurance or just mark it HTM. The majors don't have this choice and have to eat the extra cost.
It is not that way in EU banking due to the Basel framework and IRRB. At least they have reporting standards and don't allow more than 15% to be at risk in the Supervisory Outlier Test (SOT).
https://www.bis.org/fsi/fsisummaries/irrbb.htm