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It is a solvency issue because they are legally obligated to give people their money back when they ask for it. If none of the customers would withdraw money fo
by gizmo 4y ago
It is a solvency issue because they are legally obligated to give people their money back when they ask for it. If none of the customers would withdraw money for the next 10 years they would be fine.
But the customers are startups that have expenses like payroll and AWS. And the climate for raising money is bad, which means a lot of money is being withdrawn every month, and not much new money is getting deposited.
- asimpletune 4y agoThat is not what insolvent means though. There is a difference in not being able to pay back depositors bc you gambled it away on magic beans vs it’s tied up in safe bonds. In both situations you can’t satisfy depositors immediately, but they’re otherwise very different. For one thing, people buy companies that are insolvent, eg svb, they don’t buy magic bean farms, eg ftx.
- gizmo 4y agoThe money is not tied up in bonds. Because those bonds are liquid and can be sold on the market in exchange for dollars. And when depositors ask for their money the bank is forced to sell those bonds at a big loss to get dollars. That results in assets < liabilities. Which is insolvency.
- shyn3 4y agoAll the small banks are going to face this problem.