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Non-issue. >"All of these are unrealized losses are on government- guaranteed securities," Bank of America's chief financial officer, Alastair Borthwick, told

• HDThoreaun 3y ago
  That's exactly what svb said to be far.
  • FromOmelas 3y ago
    yep. Due to the SVB failure, large banks are now backstopped by a guarantee that they can loan from the FED at 100% of the value of the bonds at redemption time (even though they're worth less right now, due to rates hiking). That would have been enough to save SVB, if it had already been in force at the time. see: https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
    • amluto 3y ago
      It could save a bank from an immediate liquidity disaster. But it’s not a guaranteed long or even medium term solution. Imagine, in an extreme case, a bank with $1 billion par value of treasury bonds, with mark to market value of $800M. And $1 billion of customer deposits. And that’s it. (Obviously this is unrealistic.). Now the customers flee. The bank borrows against its $1bn of bonds and pays off the customers. The bank now has no customers, $1bn (par) of bonds, and $1bn of short-term debt to the Fed. They can roll that debt over forever, but they need to pay interest, and, when you imagine that $1bn (par!) of bonds as being worth $1bn, that’s only if they are held, earning essentially no interest, to maturity. So the bank has no income and is obligated to pay interest to the Fed until the bonds mature, and they can’t. Not can they sell the bonds because they will take a loss and be unable to roll over the loan. In other words, they’d be insolvent. They’re in the hole by $200M of present value, and they need assets or an income stream to back that up. The normal business of banking can provide that income stream. For example, sufficiently lazy customers will deposit funds at less than market interest, and the bank can earn the difference.
      • FromOmelas 3y ago
        Current wisdom was that higher interest rates would be good for a bank (after all, deposits are sticky). That didn't turn out to be the case for SVB (high concentration of risk, ...) but is more true for a more diversified bank, especially with a lifeline like the BTFP. More importantly, the actions of the FED after SVB signaled they'll do whatever it takes to keep the system stable. If a single bank was getting close to your hypothetical scenario, you'd probably see a forced merger. If the majority was at risk, you'd probably see actions to ensure higher margins (such as using reg Q to impose maximum rates on deposits)
        • amluto 3y ago
          In general, higher interest seems good for banks. But I do wonder to what extent high interest rates encourage depositors to move money out of the banking system entirely. Right now, there is no particular limit on the ability of depositors to use those deposits to purchase short-dated T-bills or their money-market equivalents — there’s plenty of T-bill liquidity to go around. (Presumably this results in the banks, on average, holding an equivalent amount less of various agency debt.) Not doing something along these lines is fairly expensive right now.
• riku_iki 3y ago
  except -XY% accumulated dollar inflation.
• anonymouse008 3y ago
  Bold. While everything is perfectly fine HTM, you still need to HTM.
• sdfghswe 3y ago
  Wrong. This is a case where at first sight it appears that BoA is in a bad situation. On further analysis it appears this is a non-issue, for the reasons you explained. But going further still, it's obvious it IS an issue. And your flaw is assuming that when a bank says "we're holding them to maturity", they're holding them to maturity. You see, SV did the same thing. They took some assets that they planned to hold to maturity if all goes well, but then used the same assets to tell regulators "don't worry guys, we have enough liquidity because there's these things here which we can sell if we really need to". Before SV went bankrupt a naive observer could've asked the question: if all clients decided to pull money, did they have enough liquidity without having to touch these assets, and the answer would've been No. Whether this is a problem for BoA depends on the answer to this same question. It's far from obvious that this is a non-issue.
  • lotsofpulp 3y ago
    It is a non issue because based on previous actions there is no way the US government lets BoA fail.
    • sdfghswe 3y ago
      What previous actions? Previous actions were that the US gov did let SV and First Republic fail.
      • happycube 3y ago
        2008-2009. BoA is in the Too Big To Fail tier, unlike SVB and First Republic (which got bought/absorbed by Chase, which is another TBTF)
      • lotsofpulp 3y ago
        SV and First Republic were rounding errors. Previous actions would be in 2008, when they outright said they were not going to let any of the big banks fail. https://www.federalreserve.gov/newsevents/testimony/bernanke20100902a.htm https://www.federalreserve.gov/newsevents/testimony/bernanke... Scroll down to the “Too Big to Fail” section.
• denimnerd42 3y ago
  They will suffer in the profits department due to this. If they're making 1% when they could be making 5% on 450 billion or whatever the total original balance of HTM was then their stock will be rightfully crushed. (actually has already been rightfully crushed)
  • justrealist 3y ago
    Yeah but people are reading this as a stability thing, which it isn't.
• deleted 3y ago
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