[jaycroft]

Because now the bank has to pay interest to depositors of $150M instead of $100M, which means that they'll pay a lower, less competitive rate. So, in order to keep customers, banks are incentivized to lend out any and all spare cash for whatever yield that they can get, in order to give attractive rates to depositors. Losing customers though shouldn't really be a problem for the bank, after all, those customers did deposit "too much" money - once enough have left to seek higher yields elsewhere, there will be less cash on the sidelines, and so higher yields for the remaining customers. I suppose if your whole philosophy is "growth at any cost", and you're measuring growth not just by AUM but also by number of customers, you get excess risk taking and yield chasing.

[actionablefiber]

So the conversation goes:

A: We have too many depositors! We are not getting enough yield to pay interest without taking on risk.

B: What if we reduced the interest we pay on deposits?

A: Then we'd stop getting new depositors! Our only option is to take on risk.

You are right, this feels like a very unsympathetic problem to have. If you are a regulated bank you need to act like a grown-up and understand that overworking the soil and underworking the soil will both give you a bad yield in the end.

[rcme]

At the SVB bought the securities in question, interest rates were 0 across nearly all savings products. SVB was trying to maximize profits for itself and shareholders. This isn't about attracting customers with high-yield accounts.

[rlucas]

... though it may well be relevant that they might have felt great pressure to /retain/ customer deposits in a world of competitive yields.

[skellington]

How bad can it be when most banks are paying 0.2% on savings accounts and nearly 0% on checking?

[actionablefiber]

I feel most banks are coasting off the inertia from longtime and/or unsophisticated customers.

Up until I switched to a neobank late last year to get some actual yield on my savings, I'd been using the same brick-and-mortar checking and savings account I opened in high school.

[abigail95]

paying a lower rate literally solves the problem of having too much deposits.

they wanted a higher return so they increased their risk and blew up.