Cirrus
1yr ago
That’s right. SVB announced that it lost $1.8 billion on sales of low-yielding securities to meet the bank’s liquidity needs. The bank’s deposits had declined each of the latter three quarters in 2022.
Also, Gary Tan of Y Combinator as well as Peter Thiel were advising their portfolio companies to pull out funds from SVB. https://www.livemint.com/news/world/peter-thiel-fund-advises-companies-to-exit-silicon-valley-bank/amp-11678456061549.html
First off, setting his bond calculation math aside… this is a FASB accounting rule, not a regulation per se. Also, most banks don’t designate their bonds as HTM. Regulatory capital rules allow most banks (except for the very largest) to exclude unrealized gains or losses from capital calculations. Marking them to market would produce significantly more volatility in capital levels. Shoring up capital is well and good, except that most banks don’t have easy access to capital markets. They can’t just raise more capital on a moment’s whim, even if these are paper changes in value. If a bank chooses to hold onto a low-yielding bond that drags against their net interest margin, then you’ll see that reflected in poor earnings performance. This information is reported to the public each quarter by all banks, so it’s not a question of transparency.
The accounting designation rules for securities is not the main problem here, it’s that interest rates stayed too low for too long, and the bond market had its worst year in 40+ years in 2022. The Fed’s recent announcement to keep interest rates elevated was a nail in the coffin.
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