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The panic is always due to duration mismatch. A startup won't survive if cash is locked up for 90 days and you can't make payroll. unless a large benevolent buy
by prasadjoglekar 4y ago
The panic is always due to duration mismatch. A startup won't survive if cash is locked up for 90 days and you can't make payroll. unless a large benevolent buyer steps in, (remember Bear Sterns and JPM?), SiVB is toast.
In fact both SI and SiVB are in trouble because they have long duration assets and short duration liabilities.
- londons_explore 4y agoYes, but the duration mismatch shouldn't be an issue here. I would happily loan money to a startup to make payroll, if that loan was 80% of the value of deposits they had in the collapsing SiVB, as long as the loan was secured with those deposits - that way I can be pretty certain I'm getting repaid, even if the startup goes bankrupt in the meantime.
- prasadjoglekar 4y agoBank balance sheets are the opposite of a general busibess. SiVB's deposits are their liabilities. Their MBS portfolio is their asset, which has been hammered by rising rates. The correct haircut on that is not 20%, it's more like 90%. The stock market is betting that equity holders of SiVB are going to get wiped out.