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0 pointsfastball3y ago0 comments

What is your source for this? From everything I have read, the first point at which they were clearly insolvent was what I mentioned previously, when they sold a huge swath of bonds at a massive loss at or around March 8th 2023, which was less than two weeks ago.

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drc500free3y ago

My read is that they were either holding the MBSs as tradeable assets (in which case they had taken a massive real loss that wiped out their equity) or until maturity decades away (in which case they didn't have enough current assets to remain solvent as a bank).

The depositor withdrawals forced them to admit that they had taken a massive loss because of insufficient hedging against interest rate hikes, but they didn't really seem to have a path to unwinding their underwater positions in any realistic timeframe. HTM was an accounting misdirection to try to hide the hole in their ship while they bailed water, but it was a massive hole and they had a tiny bucket.

fastballOP3y ago

But the withdrawals didn't force them to admit they had taken a massive loss, the withdrawals forced them to take the massive loss at all. It's not a loss until you sell, right? They sold to cover withdrawals.

Apparently they had $48B in withdrawals in a one-day period. Trying to imagine any bank that wouldn't need to take losses (to the point of being potentially insolvent) in order to deal with that. Yes, obviously SVB was still very poorly hedged given current interest rates, but they probably could've unwound their position in a much, much more favorable way without the run, to the point where it's possible they could've done so without ever being "insolvent".

zaroth3y ago

There are two different definitions of the same word.

One is balance sheet insolvency, the other is cash flow insolvency.

But it’s two forms of the same thing! Cash flow insolvency is usually a result of holding illiquid assets that can’t be turned into cash. In this case the assets were perfectly liquid though, so it wasn’t just a cash flow insolvency.

The bank was reporting the future value of the bonds, the problem was the present value was much lower.

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