The issue is with using government money to repay depositors beyond what they would otherwise get from the FDIC floor plus liquidation of SVB assets. I am not saying it should not be done (it probably should to avoid forcefully consolidating all banking at the big three), but that it should be a subject of hard questions and a serious discussion. My 2c.
Assuming there was no malfeasance and the assets are as described on the books, the bank just needs liquidity so it doesn’t have to fire sale.
Also worth pointing out that every bank likely has the same problem trying to move treasuries from 1-5 years ago right now. The financial big heads should be trying to figure out how to make such a “safe investment” actually safe again.
A person deposits $1000 at a bank at 1% interest. Bank buys 10-year treasuries yielding 3%. Rates rise, treasuries drop and the person suddenly wants his $1000 back (say, because he can get 4% at an MMF with checkwriting privileges). Bank can sell those treasuries at $950 and eat the $50 loss. Or use own money. Or get a loan.
But this is not simply "the bank just needs liquidity". It sure does, but no one is willing to lend the bank money at a lower rate, so based on the original price and the current state (rates rose + the customer wants his money back) the bank will be short those $50 that went to the t-bond seller who can now buy the same bond back for $50 less.
I wonder why the leaders at JPM did have not announced this yet, to say they are paying 100% book value.
Seems like it would let everyone go back to enjoying their weekend, including Yellen and numerous other prominent people.
Due diligence. Risk. Opportunity costs.
JP Morgan is probably re-evaluating their own assets right now with the assumption that what happened to SVB might happen to them also in a few weeks/months.
Fire sale means the selling of the assets pushes their value down. This is not that. It’s insolvency; the assets were and are worth less than their book value.
> stability of the US banking infrastructure
Speaking anecdotally, New York is surprised and the Bay Area scared. This is a local problem. Not a systemic one.
As has been repeated many times, the bank was never and is not insolvent.
Yes, it was, as declared by its regulators. Its balance sheet balanced. But its liabilities were worth more than its assets. If it weren’t insolvent, SVB could have borrowed at the Fed’s discount window. It couldn’t.