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This bank did put a ton of the money in T-Bills. The vast majority of the remainder was in boring stuff like longer-term bonds. A very small amount (relatively)
by HWR_14 4y ago
This bank did put a ton of the money in T-Bills. The vast majority of the remainder was in boring stuff like longer-term bonds. A very small amount (relatively) was involved in bitcoin lending.
The problem is highly liquid and effectively instantly redeemable wasn't enough when the crypto world melted down and a huge percentage of their depositors needed money back right away. No bank can survive that. Wells Fargo just has customers from a wide enough crosssection that they won't all need their money back at once. But you can imagine it happening to a small local bank following a natural disaster as well.
Silvergate was solvent and has the assets to cover liabilities, just has liquidity issues.
- adam_arthur 4y agoIf they could cover their liabilities with their assets then they would sell the assets to do so. Clearly the assets do not cover the liabilities. It's not a lengthy process to sell a bond on the open market
- HWR_14 4y agoA T-bill is very liquid. Municipal bond liquidity dried up during the pandemic and, AFAIK, hasn't fully recovered yet. Obviously some assets they hold (mortgage backed securities) have declined in value.
- adam_arthur 4y agoMunis are liquid, I view (a slice of) the market every day. Volume is down, but not significantly: https://www.sifma.org/resources/research/us-municipal-bonds-statistics/ https://www.sifma.org/resources/research/us-municipal-bonds-... If you bought them at 2-3% yields then you lost a lot of money, which is probably the case here. If they bought below par they would get their money back at maturity, but that could be 20-30 years from now. Despite being "safe" from a credit perspective, munis are not safe from interest rate risk
- HWR_14 4y agoSorry, you're right that their assets are also down. I didn't mean to deny that. It just seems that it was more a liquidity crunch than a solvency crunch. But maybe they cannot pay all their debtors?