Unfortunately, in related news, the answer is 'yes', from the new BTFP.[1] I wouldn't say this is wrong but it does seem like the kind of bazooka-brandishing that makes financial-folk panic still more.
Unlike NFTs or whatever, the bonds held to maturity will pay out the full amount.
There is no difference at all between the assets of liabilities and the two banks in this example. I don’t mean just that the amounts are the same: every asset is identical.
Can both use the “I have the money but just not right now” excuse or not?
You lost me there.
> Can both use the “I have the money but just not right now” excuse or not?
No.
The bonds lose 20% (for simplicity the t-bills gain 0%)
Bank 1 ends with $1000 in t-bills and $800 in t-bonds (face value $1000)
According to some people Bank 1 can say “I have $2000 it’s just that I don’t have them right now”
Bank 2 starts with $1800 in t-bills and $200 in NFTs
In the same period the NFTs lose 100%
Bank 2 still has $1800 in t-bills, sells $800 and buys $800 of those t-bonds which are trading at a 20% discount to par
Bank 2 ends with $1000 in t-bills and $800 in t-bonds (face value $1000)
Bank 1 and Bank 2 are in the same exact situation
Bank 1 can say “I have $2000 it’s just that I don’t have them right now” but Bank 2 cannot do the same?
Imagine another bank BVS of similar size that didn’t quite have the money. It has lost part of it in monkey NFTs or whatever. They have a loss similar to the mark-to-market loss of SVB.
Can they buy the same bonds that SVB has to patch the hole in their balance sheet? Can they then say “we have the money, we just don’t have it liquid right now because it's in bonds that won't mature for a while ”?
If not, why not? Both banks would have the same assets.