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What’s crazy to me is the fed hasn’t been raising rates out of the blue. What the fuck was this bank doing the last two years during every raise? They should ha
by Randalthorro 4y ago
What’s crazy to me is the fed hasn’t been raising rates out of the blue. What the fuck was this bank doing the last two years during every raise? They should have been rebalancing.
- opportune 4y agoI think what probably happened is that, for whatever reason (hubris, incompetence, some bull thesis) they didn’t sell their HTM assets during interest rate increases until it got to a point that taking a loss on them would have forced them to recalculate their reserves such that they were lower than deposits (ie insolvent). Technically they were allowed to do this because they get to count the maturity price as reserves rather than the market price. Selling at a loss at any point would have fixed the problem but force them to lower their reserve calculations and realize a loss. Once their HTM assets’ market price fell enough that rebalancing would force them to admit to insolvency by recomputing their reserves, they literally could not do anything with them except hold and pray that they make it, which may have just made things worse. Who knows how long they’d really been underwater
- runeks 4y ago> They should have been rebalancing. How would that have helped?
- shawabawa3 4y agoSay they have 90B deposits and 100B in long term treasuries Once that 100B falls to 95B due to interest rate hikes they could sell them all and buy 95B of short term treasuries instead, insulating them from any further rate hikes
- namtab00 4y agoThey would sell 95B of 10-year MBSs, but ho would buy them?
- runeks 4y agoOther banks will buy them at the right price (ie. less than what SVB paid initially).
- runeks 4y agoHow is that different from just buying short term treasuries, instead of long term, in the first place?
- shawabawa3 4y agoIf rates don't go up then you get better yield with long term treasuries