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Just treat these leveraged entities like SEC would have brokerages treat margin accounts. There are different leverage ratios counted depending on the risk of t
by pishpash 4y ago
Just treat these leveraged entities like SEC would have brokerages treat margin accounts. There are different leverage ratios counted depending on the risk of the position and if you don't maintain margin you get called and liquidated. Such regulations should be uncontroversial but I guess SVB lobbied for infinite margin and then used it!
- eru 4y agoWhat makes you think they had infinite margin? (Or lobbied for it?) They had assets on their balance sheet that lost in value. They lost enough value to wipe out all the equity, and become insolvent. Very similar to how your brokerage account can go to zero, if you trade on margin. The brokerage liquidating your account is pretty similar to the FDIC taking over SVB. (Yes, in a technical sense SVB went to infinite leverage for a brief moment. Just your brokerage account can go to zero if the market moves faster than your broker pre-emptively liquidates your stuff.)