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And lessons were learned! This is not 2008 repeating itself. SVB is unusual in how much exposure they have on interest rates, on both sides of the balance sheet
by gizmo 4y ago
And lessons were learned! This is not 2008 repeating itself. SVB is unusual in how much exposure they have on interest rates, on both sides of the balance sheet. There is no contagion, and the bank is still an asset worth many billions.
The liquidity problem gets solved by merging this bank with a bigger and more liquid bank. The insolvency problem is solved by wiping out the stockholders and bond holders will get a haircut. I get why people panic, but the issues here can be resolved cleanly and speedily.
- dragonwriter 4y agoWiping out stockholders has no effect on solvency, since stockholders only have a claim on residual assets. Bondholders getting a haircut or being wiped out addresses solvency, stockholders getting wiped out is just a side effect of dissolution without surplus assets.
- gizmo 4y agoTechnically true, but when a distressed bank gets sold where does the money go that's paid by acquiring party? Stock holders are last in line. Employees who are due wages are first in line. We can guesstimate how large the hole is and how much SVB is worth. The money that would otherwise go to stockholders during an acquisition will now be used to fix the balance sheet.
- bombcar 4y agoOften the acquiring pays a negative price ( they get the bank AND an injection of cash from FDIC).