That last sentence is nonsense. And since then banks have become a lot more robust because of more regulation, in particular higher capital requirements for risky activities and more controls on lending.
I would imagine they see an opportunity to make money from the customer list. The size of the risk book they are taking on is tiny compared to their own risk.
Presumably that choice of bond would have earned a higher return relative to more liquid bonds ? The strategy would have paid off in a stable bond price environment. It could be argued that they took the risk of a low probability outcome that has actually come to pass. I am only speculating...
The value of the bonds on their balance sheet declines as their bond prices fall in value. Consequently they have declining capital and counterparties pull credit and trading lines. Bit of a disaster for a bank. They have taken too much risk. Same old same old.
There is moral hazard in bailing out a bank or its customers. It is up to shareholders to prudently manage the business and it is up to customers not to place too much of their funds with one niche bank. If the Government steps in then risk decision making will get even worse because of that...