4 ms·
The logic is as follows: This is a liquidity problem (so far). This isn’t because loans went bad or anything, just that they needed cash quick and had to fire
by RC_ITR 4y ago
The logic is as follows:
This is a liquidity problem (so far). This isn’t because loans went bad or anything, just that they needed cash quick and had to fire sale things (the things they took losses on were US Treasuries. Mostly.)
They still have a big loan book that is probably worth more than their liabilities.
A large player with liquidity could get those loan assets on the cheap if they agree to provide the short term capital liquidity (a reassuring name also probably stems any bank run risk).
Also the FDIC is pay in pay out insurance. The commercial accounts at SVB are in the hundreds of millions and no payments were made for those accounts. The FDIC probably won’t help.
- hd95489 4y agoWe’re calling it a liquidity problem only because they don’t have to mark to market. In reality it’s a solvency problem, they lost a shit ton of money by buying bonds at 0-2% that are worth 50-70% value because equivalent bonds pay 5-6%. In theory they could hold that shit to maturity but in practice they can’t because some folks want money now and all depositors will want higher interest on deposits eventually to match market rates.
- jpmattia 4y ago> This is a liquidity problem (so far). How is that known currently? Edit: As opposed to a solvency problem?
- nemo44x 4y agoBecause they sold long term bonds for a huge loss so they could create liquidity.
- jpmattia 4y agoI meant as opposed to a solvency problem (edited above.)
- RC_ITR 4y agoYou can look at page 19 of [0] and make a call for yourself. What we know happened is that they sold US treasuries for less than they paid. They did this because people withdrew money faster than they expected. If that has an impact on their loan book (mostly loans to investors), at the very least, that line of connection has not yet been drawn. [0]https://s201.q4cdn.com/589201576/files/doc_financials/2022/q4/Q4_2022_IR_Presentation_vFINAL.pdf https://s201.q4cdn.com/589201576/files/doc_financials/2022/q...