Re:How deep is the rot in America’s banking industry?
by lmm on Thursday March 16, 2023 @09:19PM
(#35191475)
> In SVB's case, can't you cover depositors simply by holding their assets to maturity and waiting for them to be repaid?
If you're willing to lock the depositors up for 10 years and pay them back when those assets mature, sure. But that probably wouldn't be seen as an acceptable way of making those depositors whole.
Someone's got $100 of deposits with you today; you're holding a 10-year bond that will pay $102 over the 10 years but currently trades at $87. Yes you "can" "pay" "them" "back" eventually, but what if they want to pull their deposit today, perhaps to buy a bond like the one you were holding? If you do the accounting based on today, they're entitled to $100 and you only have $87; if you do the accounting based on 10 years' time, they're entitled to $115 and you only have $102; either way there's a shortfall.
If you're willing to lock the depositors up for 10 years and pay them back when those assets mature, sure. But that probably wouldn't be seen as an acceptable way of making those depositors whole.
Someone's got $100 of deposits with you today; you're holding a 10-year bond that will pay $102 over the 10 years but currently trades at $87. Yes you "can" "pay" "them" "back" eventually, but what if they want to pull their deposit today, perhaps to buy a bond like the one you were holding? If you do the accounting based on today, they're entitled to $100 and you only have $87; if you do the accounting based on 10 years' time, they're entitled to $115 and you only have $102; either way there's a shortfall.