What you are talking about is opportunity cost, not investment losses. If SVB could have held their bonds to maturity they would have gotten back every cent of the principal.
Yes, but you also need to look at the net present value. A loan today would need to be at below market rate interest in order to match up with the value of the bonds held to maturity.
Interest rates rising means products with a fixed rate yield are worth less today. That value isn't gotten back by waiting until maturity. The nominal value is retrieved, yes, but the money in the future is literally worth less.
SVB was very poorly run. We can see that easily now in retrospect.
The nominal value is what matters because deposits are also nominally valued.
We don't live in a magical world where deposits (aka liabilities) are exempt from inflation and the assets that back them are not.
If you owe someone $1000 you owe them one thousand dollars. Not the value or purchasing power of one thousand dollars -- literally one thousand things called dollars.
So if you take $1000 in deposits, you buy $1000 in bonds, you wait until the bonds mature, and then your depositor withdraws $1000, you will be fine no matter if that happens in one year or a hundred years, no matter what the rate of inflation is. Your assets and liabilities will cancel out.
If your depositor tries to get their $1000 back before the bonds mature, you are screwed. That is what happened to SVB. If all of SVB's bonds had been mature by last Friday it would have been fine. Pretty much every article in the financial press about this fiasco has made that point.
It is amazing to see people twist themselves up in knots about opportunity cost and inflation when this is so basic. If liquid assets equal liabilities in the literal number of dollars, you are even, you are solvent, and your depositors get their money back.
> A loan today would need to be at below market rate interest in order to match up with the value of the bonds held to maturity.
Well, it's a government loan, so they can do that if they want to.
Of course it is irrelevant to depositors, that is why the bank failed.
However, it also proves that holding bonds to maturity is different from selling them at market rates. It demonstrates the distinction between solvency and liquidity. Every financial publication has made this point when discussing SVB in order to educate their readership about the problems of duration risk and explain how a bank with enough assets to cover liabilities can still fail.
Now, the nice thing is, the government has time to wait for the bonds to mature. So the government can take the bonds, pay off the depositors, and get the money back when the bonds mature. The government won't lose money if they do it right -- just like they didn't lose money with TARP in 2008.
They cannot hold to maturity. Because you cannot offer your depositors 1.45% on deposits when their best alternative is 4.5-5% in risk free money market funds and treasury bills. Depositors won't just sit there and watch 6%+ inflation eat away at the real value of their deposits. The assets are correctly priced and bond losses are real.
They are an investment loss if you need to sell them at a loss, which seems to be the case here.
Also, at some point the difference between opportunity cost and investment loss becomes rather semantic. In a liquid market, you should be able to sell and rebuy your positions every day, which you generally don't do of course, but it does mean that the decision not to sell is similar to the decision to buy: if you wouldn't buy under these circumstances, you should sell.
With these bonds, their low interest makes them less attractive than newer bonds with higher interest, so nobody will want to buy these lower interest bonds at face value when higher interest bonds are available. They'll only buy these at a discount that would make their profit comparable to those of higher interest bonds. So the value drops, so that's a loss.
Personally I've never seen the point in buying low-interest bonds. But then I'm not a banker.
It's not moving the goalposts - this is an actual, real, and extremely sneaky loss. Having bonds that will pay out say $100 in eight years time is pretty much exactly equivalent to having the reduced value of those bonds now (say $80) because if you had that reduced amount of money now you could invest it in similar bonds and receive $100 in eight years time. In fact, I think with current interest rates you could even stick it in more liquid bank accounts or short-term bills and likely still receive more interest whilst not being locked in.
Only a potential buyer would lose. Not SVB - for them the price and return is locked if they can wait. The problem comes when they are forced to sell (as they were).
This is why the bond price falls - an outside party will not buy the SVB bonds because they can get a better return on a different bond. The bond price falls to make them equivalent.
