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Comment by MrMan | Hacker News Reader

it is definitely insolvent

No, it’s not. It couldn’t liquidate assets fast enough to cover a run on the bank. But assets exceed liabilities substantially. What you’ll see is a line of credit issued that props up withdrawals as assets are liquidated until the bank stabilizes and it’ll reemerge under a new charter.

https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...

California has declared it insolvent. It literally by definition is now.

No, it’s not. SBV was unable to meet its obligations and was insolvent. Then the FDIC stepped in and a part of its function will be to ensure liquidity. So it’s is therefore not insolvent. The FDIC won’t take a loss so it may become insolvent again and might have to resort to insurance to make depositors partially whole. The fact that it has a) access to sufficient credit liquidity via governmental ownership b) assets to collateralize that credit means it isn’t insolvent any more. If they had secured emergency credit lines it would be still a private institution, but functionally that’s irrelevant if you have assets of functional business relationship with SVB. Beyond an operational delay as they reopen business next week it’s functionally a no-op. This stuff isn’t cut and dry, and it’s all complex, but I think the practical outcome of this is a big nothing burger for anyone but the principals of SVB.

> No, it’s not [insolvent]

from the article op linked, in "Findings of Fact", by the Commissioner of Financial Protection and Innovation:

> the bank is now insolvent

> SBV was unable to meet its obligations and was insolvent. Then the FDIC stepped in and a part of its function will be to ensure liquidity. So it’s is therefore not insolvent. The FDIC won’t take a loss so it may become insolvent again

This is nonsense and contradictory

The bank was insolvent. FDIC took over (due to insolvency) and has no obligation to make the bank solvent again (other than the 250k insurance limit)

Ok, so given the recent announcements by the fed, treasury, and fdic i would just point out everything I said was right.

it is insolvent. It sold assets at firesale. That wiped out SVB's entire equity!!

If SVB literally had a way to hack the time-space continuum and wait out for asset prices they own , to stabilize ("maturity") , or to pay them back in full ( a loan)...SVB would STILL likely lack enough funds to pay back their deposits.

That hack of space time is called “credit,” and they can collateralize their entire liability sheet if they had a credit willing to lend them massive amounts of cash on their illiquid assets. The FDIC owns them now and has access to credit. As a business they’re fine.

The issue wasn’t the selling of assets, it was the panic that their actions took to prop up a balance sheet hole. It’s not like Enron or Lehman.

I don't think it is even chicken or egg. I think you have it wrong here

I contend there is no private entity credit that would go near SVB because precisely they realized more losses than they had more depositors, and such credit would have never been secured at the top of the pile with the FDIC lurking nearby.

No credit facility would save a doomed bank after the realized losses. It was a matter of time.

The panic was not the cause. The panic was always going to happen. A public company would have never been able to do a firesale/equity raise without inducing a panic in the first place.

That untrue. If they held the bonds to maturity they would be worth more than their face value. However due to time value of money other bonds with higher yields are in more demand making the current price lower. A private entity wouldn’t take the risk but a public one would. In fact the fed (quasi public) has been buying precisely these assets for over a decade. They actually made substantial returns by simply holding these MBS to maturity.

> the fed (quasi public) has been buying precisely these assets for over a decade

At market price, not face value.

That’s correct, but they can also lend at net present value of the HTM value using it as collateral.

Credit doesn't help

If you need $80B before your 10Y bonds mature and borrow it today, you're paying minimum 4% interest. By the time your $80B in bonds mature you owe $118B

If you're saying it doesn't matter to FDIC because they can get "free" credit, that's equivalent to a bail out

I don’t think there’s any doubt the depositors and clients of the bank are being bailed out.

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