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No, SVB was solvent as long as their assets didn’t have to marked to market, once there was a bank run they became insolvent. If the SVB assets are liquidated t
by ivalm 4y ago
No, SVB was solvent as long as their assets didn’t have to marked to market, once there was a bank run they became insolvent. If the SVB assets are liquidated they will not cover the deposits.
- hackernewds 4y agoThat's a liquidity crisis, not insolvency. They were invested in long term maturity US treasuries! The safest asset there is (arguably)
- readthenotes1 4y agoThe income from them is safe, but the value of them is not. Same with their mortgage-backed securities.
- JumpCrisscross 4y ago> a liquidity crisis, not insolvency Ish. On a mark-to-market basis they had insufficient reserves. That's closer to insolvency than illiquidity. The mismanaged duration is closer to illiquidity. But not of the sort a lender of last resort could save them from.
- dwater 4y agoAll they had to do was freeze withdrawals for 10 years and it all would have worked out fine.
- doubleunplussed 4y agoRight. But that is exactly the distinction between being illiquid and being insolvent.
- OJFord 4y agoNo it isn't? Not having access to enough quickly enough is a liquidity crisis; not having enough even when it is all liquidated is insolvency.
- ummonk 4y agoThey were still solvent despite the mark to market losses - they just couldn't meet reserve requirements (and planned to raise money through a stock sale to that effect) after the assets were marked to market. Meeting reserve requirements is a much higher bar than simply having assets worth more than liabilities.
- jkaplowitz 4y agoWhat reserve requirements? The last US reserve requirements were eliminated 3 years ago.
- MrMan 4y agothis is a lie, I am petty sure. why are you posting this stuff
- ummonk 4y agoI mean we'll find out shortly enough. If they can't find a buyer for SVB, then it's likely insolvent. If they do then it's obviously solvent.
- FireBeyond 4y agoI mean both Californian and federal regulators have specifically published press releases saying that the bank is actually insolvent...
- hnfong 4y agoSo basically you're saying you don't know or you don't have concrete evidence, but you're going to confidently make a claim anyway.
- ivalm 4y agoThat is not true. They initially had some withdrawals that they hoped to raise for, then it spiraled and they had to mark-to-market a larger portion of their portfolio which made them insolvent. Right now they are insolvent (they are also illiquid, but that's a smaller issue).
- NovemberWhiskey 4y agoIt’s more complicated than that: debt assets can be classified in a number of different ways i.e. hold-to-maturity, available-for-sale or trading. Hold-to-maturity assets are not required to mark to market, for example.
- pseudo0 4y agoWhy do we let banks play these sorts of shell games? If they are holding an asset worth $0.80, I don't see why we allow them to claim it is worth $1.00 because that is what they paid for it.
- anonymouskimmer 4y agoI would guess that this incentivizes retail and commercial banks to invest in less volatile investments with guaranteed returns, and not the stock market or other more volatile markets. And it's not based on what they paid for it from what I gather, it's based on what the total payout will be when it matures.
- NovemberWhiskey 4y agoLet me give you a simple example. Imagine a bank takes demand deposits and pays a variable rate of the base rate minus 1%. The bank then makes fixed rate, 30 year mortgage loans that it intends to service itself at the base rate plus 2% (portfolio loans). Interest rates then go up. Bang: that bank just became insolvent. Is this actually the model of the world you want?
- hnfong 4y ago> Bang: that bank just became insolvent. Is this actually the model of the world you want? I'm not sure what the problem is, this model to me actually seems reasonable. The alternative is to claim that "We are solvent as long as our clients keep deposits in our bank and are happy with an interest rate lower than our competitors for 30 years". In fact the scenario you're describing is basically what happened to SVB except the interest rates increased more. I guess the main issue is that generally banks do take a risk by borrowing short and lending long, and hope that things work out in the end.