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Doesnt this just push the can down the road? Interest rates will likely be higher not lower in 1 year so their bond portfolio will be even more underwater.
by cavisne 4y ago
Doesnt this just push the can down the road? Interest rates will likely be higher not lower in 1 year so their bond portfolio will be even more underwater.
- Tuna-Fish 4y agoNo, so long as the average maturity is not too long. The long-term bonds would have paid back enough money for SVB to pay back every depositor if there had not been a run that forced them to pay them all back at the same time. Knowing that everyone can get 12 months of runway will do much to allay fears and so reduce risk of further runs.
- pishpash 4y agoWeren't these 10-year bonds and negative-convexity MBS? 12 months doesn't improve the position at all, but maybe you can keep applying for these loans in which case it's just another QE.
- pseudo0 4y agoWhat interest rate does that assume for depositors? Sure, the face value of the bonds in 2032 dollars might have been enough to pay back the 2022 obligations to their depositors, but banks are routinely offering 2-4% interest in high interest savings accounts now. So either depositors will leave for better options, or SVB would have had to offer competitive rates (digging the insolvency hole deeper).
- everybodyknows 4y agoBig banks are still offering sub-1% rates: https://www.usbank.com/bank-accounts/savings-accounts/elite-money-market.html https://www.usbank.com/bank-accounts/savings-accounts/elite-... Compare that to a money market fund from a stock broker at 4.5%: https://www.schwab.com/money-market-funds https://www.schwab.com/money-market-funds The question is, how quickly do simple folks figure out they're being slowly bled, and start moving their cash to some place where it's appreciated?