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Banks either use Fair Value accounting or Accrual accounting for a given position. If it’s fair value, then the bond is already marked down on the balance sheet
by credit_guy 4y ago
Banks either use Fair Value accounting or Accrual accounting for a given position. If it’s fair value, then the bond is already marked down on the balance sheet. Selling it or not does not result in a profit or a loss, at least not a significant one. If it’s in accrual, it’s held at par so there is no loss on the balance sheet, but they also can’t sell. They need to hold to maturity, that’s the rule.
- naveen99 4y agoYeah, so an inability to sell because they are levered up and using accrual accounting isn’t really a lack of liquidity in the market. It’s a seller liquidity problem, not a buyer liquidity problem. which is a weird type of liquidity problem.
- jbscpa 4y ago“ which is a weird type of liquidity problem” Ah yes. The very definition of “financial accident”