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The bank run seems to have occurred after the insolvency. The bank was appears to have been insolvent (from the currently available information), though they a
by nickff 4y ago
The bank run seems to have occurred after the insolvency.
The bank was appears to have been insolvent (from the currently available information), though they avoided their books showing the fact by having bonds marked as “HTM”.
When a bank is insolvent, it’s best to shut it down as soon as possible, to avoid the bank engaging in risky behavior to ‘make back’ the missing money.
- bandrami 4y agoNot insolvent, illiquid. Calling SVB insolvent is like calling Elon Musk "poor" because his income this year was $0.
- taxman22 4y agoSVB was insolvent.
- ineedasername 4y agoSVB became insolvent.
- taxman22 4y agoSVB was insolvent last quarter.
- remote_phone 4y agoYou don’t know what the definition of insolvent is, if you believe that.
- danielmarkbruce 4y agoThere isn't an agreed upon definition of insolvent. SVB certainly was insolvent under some definitions of the word.
- manquer 4y agoIt was cited to be insolvent in addition be illquid when be taken over by DFPI[1] and most observers and analysts agree . If it were only illquid, it would be far easier to find a buyer and it would have already been sold by now. [1] https://dfpi.ca.gov/2023/03/10/california-financial-regulator-takes-possession-of-silicon-valley-bank/ https://dfpi.ca.gov/2023/03/10/california-financial-regulato...
- mbreese 4y agoThe FDIC take over only happened after the massive amount of withdrawals/bank run the day before. Which is the nuance in the above statements... they had assets, but after selling what they could to meet immediate withdrawal obligations, the assets they had left (HTM) weren't worth as much if sold immediately than their booked value. If the assets could have been held until maturity (HTM), they would have been worth their book value. So, only after the run did they become insolvent. The change from illiquid to insolvent happened quickly, but without those withdrawals, the illiquidity could have likely been managed to avoid an outright insolvency (probably through a sale).
- danielmarkbruce 4y agoThey were liquid. They could sell the $80 bill or so of bonds they had quickly and at fair value. Their problem was selling forced them to face the reality that they'd lost $12 or $13 bill on a wrong way interest rate bet.
- ineedasername 4y agoUnder that interpretation nearly everything is liquid. If you’re going to take a loss by selling an asset prematurely, it is illiquid. Otherwise you’d have to say things like the houses people own are liquid because the person could sell it in a day if they were willing to do so for 80 cents on the dollar. That is not the financial world’s definition of “liquid”
- zaroth 4y agoI have to disagree. Liquidity is the ability to sell, period. Not the ability to sell at a profit.
- ineedasername 4y agoI said nothing about profit. I can sell my house today, yet houses are one of the prototypical examples of something that is illiquid. The ability to sell something fast is not the definition of liquid. Liquidity is specifically the ease (or difficulty) with which you can sell something without taking a haircut.
- danielmarkbruce 4y agoNonsense. Things one can sell at fair value in a few mins are liquid, and things one has to sell slowly or take 80 cents on the dollar to get rid of it fast (like a house in your example) are illiquid. It's a function of buyers and process, not my accounting treatment or tax treatment or whatever other treatment might make me not like the idea of selling right now. What's next? The FX markets aren't liquid because I don't feel like realizing a gain from a tax perspective? >> That is not the financial world’s definition of “liquid” Yeah, it is, to us in the financial world.
- Spooky23 4y agoIlliquid to the point that you cannot satisfy your debts is essentially the definition of insolvent.
- ineedasername 4y agoNo, it really isn’t. It may lead to insolvency, but that is by no means a foregone conclusion and can play out in different ways. At a simple scale, If I own a $200k home outright and have $50k in credit card debt that I cant pay then I file for bankruptcy, negotiate with creditors to sell my home and pay the debts, and come out with $150k in assets with no liabilities. I was always solvent. This happens daily in the business world’s bankruptcy courts. (Of course some of them are also insolvent)
- Spooky23 4y agoThe key thing is you are not a bank required to pay depositors on demand.
- ineedasername 4y agoThe math & definitions of solvency & liquidity don't change with scale. They are separate things even if the mechanics of how they influence each other put them in such close proximity to each other that some people confuse the two. My small scale example illustrated the concept, my large-scale citation of bankruptcy courts show a bit of how it plays out in real life & validates the analogy.
- bandrami 4y agoNo, it's not
- positr0n 4y agoIlliquid and insolvent play off each other to the point that one implies the other at this state. The only way to make back the $100 they spent on a 1.25% 10 year $100 treasury was to wait 8 more years. Those 8 years they'd either have to become slowly become insolvent by offering their depositors 3-4% savings accounts like every other bank, or become illiquid because what depositor would keep their money in an account earning 0.5% so that SVB can keep the lights on. They had to sell and book the loss eventually.
- mbreese 4y agoBonds that are HTM would have been profitable. They just weren't sellable for a profit on the open market (at the time they needed to sell them), because their yield was too low. So, as far as I have read, it wasn't until there was a run that they needed to dramatically increase liquidity. With so much of their holding being HTM, they were stuck. The issue was a mismatch in the timeframes (which was the fatal problem, and should not have happened). But without that pressure, there probably would have been enough time for this to have been a much more orderly transition. The panic didn't help anyone, it just made SVB's existing problems more difficult to manage. To put it another way -- SVB went bankrupt the old fashioned way... slowly and then all at once. The bank run was the inflection point.
- jliptzin 4y agoBut Fox News told me it was because they were woke?