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Does the share price of this bank have any particular impact on its ability to operate as a bank for current depositors?
by altairprime 4y ago
Does the share price of this bank have any particular impact on its ability to operate as a bank for current depositors?
- rcme 4y agoThe share price doesn't have an impact on the day-to-day operations of the bank, but, in this case, the share price is a reflection of perceived solvency of the bank.
- altairprime 4y agoIs the share price itself a factor in actual solvency in any way?
- deleted 4y ago[deleted]
- rcme 4y agoI guess technically. SIVB, for instance, tried to do an equity offering to shore up their books. It didn't work though.
- drc500free 4y agoIt impacts the ability to raise more capital if that is needed to ensure solvency.
- meany 4y agoIt could be interpreted as loss of faith in the bank and the risk of a bank run, which impacts the ability to get investment to support current depositors needs. That’s essentially what happened at SVB.
- LatteLazy 4y agoYes. Banks are required to have a certain amount of their balance sheet as equity. If that gets too low, they have to increase it. That means selling more shares. Only if your price is already very low, you cannot sell more shares because no one will buy. So then you cannot get your capital ratio right, and the FED (or other institution steps in to take over). This is not a problem for day-day operations, but it can rapidly become a problem week-week...