7 ms·

> SMB and Signature bank suffered from a liquidity crisis rather than a solvency crisis did you mean SVB? they were insolvent, not just illiquid.

labster 4y ago
Insolvent only in a technical sense; if you could have valued their government bonds at face value rather than market value, they had plenty of money.
- kryogen1c 4y ago
  > if you could have valued their government bonds at face value rather than market value, they had plenty of money that is not technical definition of insolvency. if you can cover your debts but need time to do so, thats the definition of being illiquid, not insolvent. my understanding of their books is that they could not cover their debts. the change in market conditions drove down their bond portfolio to the point of insolvency.
  - carnitine 4y ago
    Under your definition they can just hold the bonds to maturity to be solvent.
    - itsoktocry 4y ago
      But you can't "just hold to maturity"; you are obligated to pay back deposits on demand.
      - carnitine 4y ago
        Obviously not in reality, but their (wrong) definition refers to ‘time to do so’.
        kryogen1c 4y ago
        >> time to do so, thats the definition of being illiquid, not insolvent. i said time is about liquidity, not solvency. i never said gaining money in the future makes you solvent in the past.
  - taeric 4y ago
    There is, of course, a complication here. If they had the option to take loans against their bonds at face value, there is an argument they would still exist. And that option is now on the table for everyone that didn't get shutdown. Per the news over the weekend. Granted, I think there is also a strong argument that shutting them was as much to stop the ability for the run to continue? Such that even with that loan option (that, again, didn't exist last week), something had to stop the run.
  - jjeaff 4y ago
    Are you sure about the technical definition of insolvent? Any definition I can find defines insolvent as the inability to pay debts as they come due. Insolvent is when your current liabilities exceed the current market value of your assets. Otherwise, one could remain forever solvent by simply putting $100 into a total market index. Sure, I owe $1m right now, but in 1,000 years, my $100 will be worth more than enough to pay off the debt.
    - labster 4y ago
      Under this definition, every non-central bank would become insolvent if subjected to the same conditions as SVB. If you take away $42B in one day in withdrawals, every single bank no longer pay its debts to depositors. Which is fine but not all that useful. We know bank runs make banks fail.
      - AnimalMuppet 4y ago
        jeaff said: > Insolvent is when your current liabilities exceed the current market value of your assets. If I have a bank, and it's solvent (by jeaff's definition), and then it faces $42 billion in withdrawals in one day, then it's still solvent by jeaff's definition. It may be illiquid (unable to come up with $42 billion in cash in 24 hours), but the assets still exceed the liabilities. (Or, they might not even have been illiquid, if they could sell the assets at full price within a day.) So, no, your argument does not disprove jeaff's definition.
- deleted 4y ago
  [deleted]
- vkou 4y ago
  If you'd like to value my 10-year 1%-yield treasures at face-value, I have a lot of them I'd be happy to sell you. I don't suppose you would like to pay a dollar for eighty cents, though. The hold-to-maturity rules seem reasonable to me, and it's insane that SVB actively and voluntarily turned themselves from 'insolvent under a particular accounting interpretation' to 'actually insolvent'.
  - AnimalMuppet 4y ago
    Withdrawals turned them from "insolvent under a technical rule" to "actually insolvent". That's kind of why they were insolvent under the technical rule - because withdrawals could make them actually insolvent.
    - deleted 4y ago
      [deleted]
- AnimalMuppet 4y ago
  If. You can't actually do that, though, so it's a meaningless "if".
- vorpalhex 4y ago
  Were it only the case we could all have our assets valued at face value and not market value...
- mrguyorama 4y ago
  They had to liquidate some assets to cover withdrawals. In doing so, they lost money on their investments, which put them underwater in term of assets.
- itsoktocry 4y ago
  >Insolvent only in a technical sense What is there besides the technical sense? Their liabilities (deposits) can be called on demand, at any time, and they couldn't cover the value of those liabilities. This isn't complicated. Imaginary worlds where the bonds were worth more are irrelevant.

labster 4y ago

Insolvent only in a technical sense; if you could have valued their government bonds at face value rather than market value, they had plenty of money.

kryogen1c 4y ago
> if you could have valued their government bonds at face value rather than market value, they had plenty of money that is not technical definition of insolvency. if you can cover your debts but need time to do so, thats the definition of being illiquid, not insolvent. my understanding of their books is that they could not cover their debts. the change in market conditions drove down their bond portfolio to the point of insolvency.
- carnitine 4y ago
  Under your definition they can just hold the bonds to maturity to be solvent.
  - itsoktocry 4y ago
    But you can't "just hold to maturity"; you are obligated to pay back deposits on demand.
    - carnitine 4y ago
      Obviously not in reality, but their (wrong) definition refers to ‘time to do so’.
      - kryogen1c 4y ago
        >> time to do so, thats the definition of being illiquid, not insolvent. i said time is about liquidity, not solvency. i never said gaining money in the future makes you solvent in the past.
- taeric 4y ago
  There is, of course, a complication here. If they had the option to take loans against their bonds at face value, there is an argument they would still exist. And that option is now on the table for everyone that didn't get shutdown. Per the news over the weekend. Granted, I think there is also a strong argument that shutting them was as much to stop the ability for the run to continue? Such that even with that loan option (that, again, didn't exist last week), something had to stop the run.
- jjeaff 4y ago
  Are you sure about the technical definition of insolvent? Any definition I can find defines insolvent as the inability to pay debts as they come due. Insolvent is when your current liabilities exceed the current market value of your assets. Otherwise, one could remain forever solvent by simply putting $100 into a total market index. Sure, I owe $1m right now, but in 1,000 years, my $100 will be worth more than enough to pay off the debt.
  - labster 4y ago
    Under this definition, every non-central bank would become insolvent if subjected to the same conditions as SVB. If you take away $42B in one day in withdrawals, every single bank no longer pay its debts to depositors. Which is fine but not all that useful. We know bank runs make banks fail.
    - AnimalMuppet 4y ago
      jeaff said: > Insolvent is when your current liabilities exceed the current market value of your assets. If I have a bank, and it's solvent (by jeaff's definition), and then it faces $42 billion in withdrawals in one day, then it's still solvent by jeaff's definition. It may be illiquid (unable to come up with $42 billion in cash in 24 hours), but the assets still exceed the liabilities. (Or, they might not even have been illiquid, if they could sell the assets at full price within a day.) So, no, your argument does not disprove jeaff's definition.
deleted 4y ago
[deleted]
vkou 4y ago
If you'd like to value my 10-year 1%-yield treasures at face-value, I have a lot of them I'd be happy to sell you. I don't suppose you would like to pay a dollar for eighty cents, though. The hold-to-maturity rules seem reasonable to me, and it's insane that SVB actively and voluntarily turned themselves from 'insolvent under a particular accounting interpretation' to 'actually insolvent'.
- AnimalMuppet 4y ago
  Withdrawals turned them from "insolvent under a technical rule" to "actually insolvent". That's kind of why they were insolvent under the technical rule - because withdrawals could make them actually insolvent.
  - deleted 4y ago
    [deleted]
AnimalMuppet 4y ago
If. You can't actually do that, though, so it's a meaningless "if".
vorpalhex 4y ago
Were it only the case we could all have our assets valued at face value and not market value...
mrguyorama 4y ago
They had to liquidate some assets to cover withdrawals. In doing so, they lost money on their investments, which put them underwater in term of assets.
itsoktocry 4y ago
>Insolvent only in a technical sense What is there besides the technical sense? Their liabilities (deposits) can be called on demand, at any time, and they couldn't cover the value of those liabilities. This isn't complicated. Imaginary worlds where the bonds were worth more are irrelevant.