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Feels like a yellow journalism headline. It's only a loss if they have to liquidate before maturity. Kind of feels paradoxical: money can be accounted for in

• 88913527 4y ago
  It would be yellow journalism if there wasn't a bank run and there wasn't forced liquidations of underwater assets. It is completely germaine to consider how these unrealized losses impact the financial system.
  • deleted 4y ago
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• swatcoder 4y ago
  “Okay everybody, just stand still and we’ll all be fine” It doesn’t take a panic for banks to need to sell upside down assets early. It can just take any sort of change to the wind. It’s not a crisis for there to be a lot of unrealized losses (you’d expect that when an economy turns), but it’s absolutely something to monitor and consider.
• danielmarkbruce 4y ago
  People who invest in banks don't think the $600 bill of losses is sensationalized or exaggerated. Economically, it's a loss. They had a net worth around $2.1 trill and now they are at $1.5 trill. Practically, it's problematic. They have locked in low returns in a world were depositors expect higher returns. Their business customers will pay attention. They'll report lower net interest margins, which means lower earnings. They have also opened themselves up to a run. Their business customers will pay attention to that too, making it more likely to happen. The only world in which it's not a loss is under certain accounting standards. Those standards can and do change.
• cperciva 4y ago
  It's a real loss, just not a realized loss. If your house burns down, you've lost the value of the building even if you haven't sold the land yet.
  • chii 4y ago
    but it hasn't been burnt down yet. A better analogy is that of a tree. You expect your planted tree (sapling) to be fully grown by 10 yrs time, and right now it's a sapling. Unfortunately, more recently planted saplings are growing up faster, and thus, result in more wood (presumably it's grown for wood) earlier than your sapling planted a few yrs ago. Therefore, a sapling from a few yrs ago is not worth as much future wood _right now_. But if you waited for the sapling to finish growing, you'd get back the amount of wood you originally expected. but if you chopped the sapling down today for the wood, you'd get far less.
    • amluto 4y ago
      And since you bought that tree by borrowing money at a variable and now higher rate, you need more wood to break even.
    • hattmall 4y ago
      But you have to balance the idea of should you cut your sapling down and use the space to plant the faster growing trees because you will ultimately get more wood. Those failing now are the groups that didn't cut the trees soon enough. It's a competitive environment and even faster growing trees may be coming. Waiting is not a viable option in many cases.
  • mym1990 4y ago
    But it isn't because the full value of the bonds will be received at maturity, so all they have to do is avoid a bank run for 8 or so years.
  • Arainach 4y ago
    How is it a real loss? Bonds have terms. If the bank sits on the bond until its term of maturity it gets a certain amount of money. Let's say the bond at maturity is worth X. The bank says the bond is worth Y. The market says the bond is worth Z. If Y > Z, that's only a problem if you sell. There is no loss - realized or unrealized - if you hold to maturity unless Y > X. However, how could this ever be the case? No one would pay more than X, so the bank could never claim the market value was higher.
• xuki 4y ago
  > unless the owner is depending on liquidating them at par value at any time. And when they do, they all do at once. We'll see how far creative accounting can take us this time.
• amluto 4y ago
  > Current market value of assets may be below what was paid for them, but that doesn't matter unless the owner was depending on liquidating them at par value at any time. That is simply not true. The current value is the mark-to-market value, possibly plus half the spread depending on your perspective. The net present value is roughly the same number, because it’s the future value discounted by the discount/risk-free rate, and any credible estimate of the risk free rate has increased substantially. This may not be a liquidity problem because, if those assets don’t need to be liquidated, then they don’t need to be liquidated. And it may or may not be a solvency problem, because the banks in question may not need that money before maturity, and even if their portfolio currently has negative value, they may make it up with other investments before maturity. But yes, that money really is lost. Before you say “but the money will all be there at maturity”, keep in mind that, if you project the banks’ balance sheets out 30 years, the value, in 2053 dollars, of those long term bonds may be unchanged, but the cost of the liabilities (deposits) that offset them has gone way up. edit: it is possible and maybe even likely that some of these banks hedged this risk. In that case they may have a loss from the interest rate exposure and an offsetting gain from the hedge.
  • paulddraper 4y ago
    All these people comparing 2023 dollars to 2053 dollars.... I swear HN is the dumbest smart place there is.
  • sroussey 4y ago
    If people followed this reasoning, then they would keep everything in cash or money market mutual funds. The mark to market will always be 1=1 and have no liquidity problems. Of course, all banks would fail. These “unrealized losses” don’t include “unrealized hedges” either. Of course, SPV let those go. Oops.
    • amluto 4y ago
      I don’t really know what you’re trying to say. There are many things one can invest in. And indeed cash and money market funds are not strongly exposed to interest rate risk, and a rate change does not affect their present value to any substantial extent. And banks can absolutely make money without taking on interest rate risk. They can hedge, or they can invest in things that produce earnings at a rate that varies with interest rate (short term bonds, adjustable rate mortgages, etc). Or both. Or take on a limited amount of interest rate risk such that they are okay if they bet wrong.
• akira2501 4y ago
  > yellow journalism > It's only a loss if... I always thought one the fundaments of "yellow journalism" was that it had no basis in fact. Exaggeration alone doesn't seem enough to earn the association, I think. > unless the owner is depending on liquidating them at par value at any time. Well.. exactly. Shouldn't we have an accounting mechanism that actually accounts for this eventuality? In particular because this is a bank, it doesn't seem isolated, interest rates have changed significantly recently, and the NYSE halts list today appears pretty foreboding to an outsider.
  • pas 4y ago
    mark-to-market accounting. but that usually overestimates in up cycles and underestimates in down cycles. so the solution was/is Basel III, capital requirements, leverage ratios, and actual stress tests.
  • Retric 4y ago
    > no basis in fact Close, yellow journalism is about eye catching headlines with ”little or no legitimate, well-researched news.” It wasn’t that they need to make stuff up, they just ran with whatever would capture people’s attention even if the source was dubious or the interpretation superficial. Aka “Techniques may include exaggerations of news events, scandal-mongering, or sensationalism.” https://en.wikipedia.org/wiki/Yellow_journalism https://en.wikipedia.org/wiki/Yellow_journalism
• cameldrv 4y ago
  Regardless of how it's marked on their books, the loans and bonds pay very little interest. This works fine when their source of funds is checking and savings accounts that pay zero interest. When t-bills are paying 4%, fewer customers will be willing to accept this and will pull their funds or demand higher interest. The problem is that some banks may not be able to afford this.