4 ms·

If other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then

by trts 4y ago

If other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then they have the same problem. SBV bought 10-year term mortgage backed securities to earn yield on their cash holdings. When the risk-free interest rate started to exceed the yield on these assets, the MBS value declined. As a result SBV became insolvent. Either it was an isolated, stupid move by a big bank who expected that interest rates would not rise, or they didn't care because of moral hazard.

chatmasta 4y ago
You can see some comparative data in this thread [0] (the author is also worth a follow). It looks like SVB was mostly an outlier but there are a few other banks with possibly similar issues. My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. [0] https://twitter.com/GRDecter/status/1634208659407351812 https://twitter.com/GRDecter/status/1634208659407351812 [1] https://twitter.com/RepThomasMassie/status/1635316221108449280 https://twitter.com/RepThomasMassie/status/16353162211084492...
- disgruntledphd2 4y ago
  > My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. This was covered by a statement yesterday I think, as I read it in the FT this morning (on GMT).
sanderjd 4y ago
They had the same problem, until last night. Now they can use those long-duration bonds to get a free loan from the Fed for a year.
dragonwriter 4y ago
> If other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then they have the same problem. Except the Fed announced a liquidity loan program for banks in such situations based on the par value of the assets, which prevents them from having to firsale them at reduced value, take the markdown, and risk insolvency.

by trts 4y ago

chatmasta 4y ago

You can see some comparative data in this thread [0] (the author is also worth a follow). It looks like SVB was mostly an outlier but there are a few other banks with possibly similar issues. My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. [0] https://twitter.com/GRDecter/status/1634208659407351812 https://twitter.com/GRDecter/status/1634208659407351812 [1] https://twitter.com/RepThomasMassie/status/1635316221108449280 https://twitter.com/RepThomasMassie/status/16353162211084492...

disgruntledphd2 4y ago
> My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. This was covered by a statement yesterday I think, as I read it in the FT this morning (on GMT).

sanderjd 4y ago

They had the same problem, until last night. Now they can use those long-duration bonds to get a free loan from the Fed for a year.

dragonwriter 4y ago

> If other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then they have the same problem. Except the Fed announced a liquidity loan program for banks in such situations based on the par value of the assets, which prevents them from having to firsale them at reduced value, take the markdown, and risk insolvency.