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This doesn't work either. Remember, the reason that the market value of the T-bills in their reserves has dropped is that the interest rate on them is lower tha
by makomk 4y ago
This doesn't work either. Remember, the reason that the market value of the T-bills in their reserves has dropped is that the interest rate on them is lower than the current interest rate that people can get by buying them now, so the bank likely cannot afford to pay their customers a market interest rate of 1% below that. The only way for the hold-to-maturity value of their reserves to actually be realised is if customers don't withdraw their deposits and they don't have to substantially increase the interest rates they pay in order to achieve that - otherwise they're likely to run out of money, either quickly or slowly.
- Danieru 4y agoYou nailed it I think. Right now there will be a lot of chatter if the root cause was industry concentration, mark to market, junior VCs scaring gulible founders, or as you pointed out: duration risk. I think in five years the common narrative will be about duration risk. To spell out what you hinted at: SVB will collapse at some point in the next few years. The only scenario they survive is if they survive this bank run, and then soonsih the fed lowers interest rates by a ton. Otherwise even without this bank run SVB will still slowly be forced to sell off more and more HTM assets. Core reason being they cannot cashflow wise offer market rate interest on deposits. Clients _would_ move their money to better paying banks, not everyone but too many. Thus this bank run only accelerates the inevitable. The interest broader note is how other bigger banks have or have not managed their exposure to duration. And special eyes towards the Japanese MegaBanks, double so if the bank of Japan does raise rates.
- pishpash 4y agoI was talking about offering it on new deposits. If your old deposits are not duration-matched then yes, you are screwed.