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They weren’t insolvent because banks are allowed to pretend treasuries haven’t lost value so long as they intend to hold them to maturity. Across all banks, th

They weren’t insolvent because banks are allowed to pretend treasuries haven’t lost value so long as they intend to hold them to maturity. Across all banks, there are over $600b in such losses. If they can hold those securities until they mature, all is good. If they need to sell them earlier, the losses become real. https://twitter.com/grdecter/status/1634091448743219201?s=46&t=Rzfz7ma1VEMxiFDXLqgb3Q https://twitter.com/grdecter/status/1634091448743219201?s=46...

khuey 4y ago
In SVB's case I believe they are mostly mortgage backed securities (ironic, eh) rather than treasuries but yes. I wonder if this will spur any reflection on the accounting rules for HTM securities.
- dehrmann 4y ago
  I bet they bought mortgage-backed securities because returns on everything safer were essentially zero. Crazy-low interest rates for too long created this problem.
amluto 4y ago
> If they can hold those securities until they mature, all is good. That's an odd bit of logic. If interest rates stay the same and nothing of interest happens for the next 20-30 years, then those banks will lose the spread between the interest on those instruments and the interest they're paying (SVB was paying 4.5% on savings!) for 20-30 years. That money needs to come for somewhere. The net present value of that loss is a very similar number to the unrealized mark-to-market loss of value of those instruments. It's almost tautological that being able to hold those instruments to maturity requires that they remain solvent for the term of those instruments, which means that the money to cover their losses must come from somewhere. Now everyone involved can gamble that interest rates will go back down in a few years and those short interest rate positions will recover, but that's a gamble, not a certainty. Of course, the Fed does have a bit of an interest in pushing rates down if needed to avoid bank failures...

khuey 4y ago

In SVB's case I believe they are mostly mortgage backed securities (ironic, eh) rather than treasuries but yes. I wonder if this will spur any reflection on the accounting rules for HTM securities.

dehrmann 4y ago
I bet they bought mortgage-backed securities because returns on everything safer were essentially zero. Crazy-low interest rates for too long created this problem.

amluto 4y ago

> If they can hold those securities until they mature, all is good. That's an odd bit of logic. If interest rates stay the same and nothing of interest happens for the next 20-30 years, then those banks will lose the spread between the interest on those instruments and the interest they're paying (SVB was paying 4.5% on savings!) for 20-30 years. That money needs to come for somewhere. The net present value of that loss is a very similar number to the unrealized mark-to-market loss of value of those instruments. It's almost tautological that being able to hold those instruments to maturity requires that they remain solvent for the term of those instruments, which means that the money to cover their losses must come from somewhere. Now everyone involved can gamble that interest rates will go back down in a few years and those short interest rate positions will recover, but that's a gamble, not a certainty. Of course, the Fed does have a bit of an interest in pushing rates down if needed to avoid bank failures...