6 ms·

precisely, the maturation for the bonds were long-term. they would have been fine over time, if not for the bank run

paulddraper 4y ago
If your "liquidity crisis" is measured in terms of years and years, you have a solvency crisis. 1 2023USD =/= 1 2033USD Those aren't the same currency. Solvency is whether you could go to market today (or soon) and show more assets than liabilities.
- ves 4y ago
  The liabilities are the same currency and the same amount in 2023 and 2033. They’re solvent. The asterisk is that the liabilities are generating interest, but this is fine because (one very safely assumes) that’s covered by the interest on the long-duration assets SVB bought.
  - oldgradstudent 4y ago
    Interest rates have risen since those long-duration assets were purchased. Depositors now expect higher interest rates which cannot be covered by those assets. They will withdraw their deposits and move them to a bank that can offer higher interest rates.
    - ves 4y ago
      right, which is why this is a liquidity problem and not a solvency one. The assets cover the liabilities--you just have to wait ten years or whatever.
      - jahewson 4y ago
        No their bounds are worth fundamentally less than they paid for them.
        whimsicalism 4y ago
        There is a continuum in how quickly you need to sell and the price you willmget for something.
      - oldgradstudent 4y ago
        No. Those are short term liabilities. The ability of depositors to withdraw their funds is part of the liability. If the bank wanted to raise long term deposits it would have had to pay much higher interest rates. Once they withdraw the bank can not raise additional funds because all other depositors have better interest rates in other banks. No amount of time will cure this situation, the values of those bonds will not recover. This is not some temporary panic. The only way for the situation to improve is if interest rates go down in the short term. Unless that happens, the bank remain insolvent.
FollowingTheDao 4y ago
So it's the customer's fault?
- strbean 4y ago
  No, it's Peter Thiel's fault for intentionally initiating a bank run? SVB's systemic risk was just that the vast majority of their depositors are startups, and can corralled into action by VCs. Thiel decided all the startups he backed should withdraw all their money from SVB at once, and knew the rest of the VC world would follow suit.

If your "liquidity crisis" is measured in terms of years and years, you have a solvency crisis. 1 2023USD =/= 1 2033USD Those aren't the same currency. Solvency is whether you could go to market today (or soon) and show more assets than liabilities.

ves 4y ago
The liabilities are the same currency and the same amount in 2023 and 2033. They’re solvent. The asterisk is that the liabilities are generating interest, but this is fine because (one very safely assumes) that’s covered by the interest on the long-duration assets SVB bought.
- oldgradstudent 4y ago
  Interest rates have risen since those long-duration assets were purchased. Depositors now expect higher interest rates which cannot be covered by those assets. They will withdraw their deposits and move them to a bank that can offer higher interest rates.
  - ves 4y ago
    right, which is why this is a liquidity problem and not a solvency one. The assets cover the liabilities--you just have to wait ten years or whatever.
    - jahewson 4y ago
      No their bounds are worth fundamentally less than they paid for them.
      - whimsicalism 4y ago
        There is a continuum in how quickly you need to sell and the price you willmget for something.
    - oldgradstudent 4y ago
      No. Those are short term liabilities. The ability of depositors to withdraw their funds is part of the liability. If the bank wanted to raise long term deposits it would have had to pay much higher interest rates. Once they withdraw the bank can not raise additional funds because all other depositors have better interest rates in other banks. No amount of time will cure this situation, the values of those bonds will not recover. This is not some temporary panic. The only way for the situation to improve is if interest rates go down in the short term. Unless that happens, the bank remain insolvent.

FollowingTheDao 4y ago

So it's the customer's fault?

strbean 4y ago
No, it's Peter Thiel's fault for intentionally initiating a bank run? SVB's systemic risk was just that the vast majority of their depositors are startups, and can corralled into action by VCs. Thiel decided all the startups he backed should withdraw all their money from SVB at once, and knew the rest of the VC world would follow suit.