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Maybe the standard banking model is broken. Banks offer a theoretical guarantee of the ability withdraw your money at any time and then just hope the situation

Maybe the standard banking model is broken. Banks offer a theoretical guarantee of the ability withdraw your money at any time and then just hope the situation that prevents that doesn't happen. Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit).

daveguy 4y ago
It's not the bank that guarantees it. It's the US Government through FDIC insurance. And that is working perfectly. There is no guarantee implied or explicit over 250k / entity / bank. There are distribution facilities that allow higher amounts to be guaranteed and that is working too.
gruez 4y ago
> Maybe the standard banking model is broken. Banks offer a theoretical guarantee of the ability withdraw your money at any time and then just hope the situation that prevents that doesn't happen. In this case it's not just a case of the depositor's money being tied up in illiquid assets, it's that the asset's market value dropped so that they're worth less than the deposits. This is slightly different than just the assets being "illiquid", because if were only illiquid, you can presumably pay off your depositors once a sale can be arranged. In this case even if they were able to sell the bonds, there won't be enough money to pay back the depositors. >Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit). That's... basically how banks implicitly work and one of their core functions (maturity transformation).
- fspeech 4y ago
  You could go stronger with your assertion, that the MBS are actually fairly liquid (defintion: a quick sale will not cause a large drop in their value) but have large losses in market value compared to when they were bought. SVB should not have been allowed to use HTM accounting on such a large portfolio of their assets generated from hot money inflows.
- mankutimma 4y ago
  Liquidity vs Solvency

daveguy 4y ago

It's not the bank that guarantees it. It's the US Government through FDIC insurance. And that is working perfectly. There is no guarantee implied or explicit over 250k / entity / bank. There are distribution facilities that allow higher amounts to be guaranteed and that is working too.

gruez 4y ago

> Maybe the standard banking model is broken. Banks offer a theoretical guarantee of the ability withdraw your money at any time and then just hope the situation that prevents that doesn't happen. In this case it's not just a case of the depositor's money being tied up in illiquid assets, it's that the asset's market value dropped so that they're worth less than the deposits. This is slightly different than just the assets being "illiquid", because if were only illiquid, you can presumably pay off your depositors once a sale can be arranged. In this case even if they were able to sell the bonds, there won't be enough money to pay back the depositors. >Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit). That's... basically how banks implicitly work and one of their core functions (maturity transformation).

fspeech 4y ago
You could go stronger with your assertion, that the MBS are actually fairly liquid (defintion: a quick sale will not cause a large drop in their value) but have large losses in market value compared to when they were bought. SVB should not have been allowed to use HTM accounting on such a large portfolio of their assets generated from hot money inflows.
mankutimma 4y ago
Liquidity vs Solvency