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Comment by aliljet | Hacker News Reader

It's interesting to see First Republic bank having this trouble. It seems clear (feel free to correct me) that they ALSO had massive loan portfolios at extremely low rates which have likely rapidly and seriously declined in value over longer terms. And it's likely they too were enjoying a deluge of deposits from the valley's success and are now seeing huge amounts of money drying up. I'm not saying the bank is bankrupt, but they too could easily end up in a liquidity crisis. In fact, I wonder if they already are heading in that direction...

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This is FUD without analytic support. Loan portfolios are floating rate and pricing for loans has been stable. You need to look at interest rate exposure which is not in the loan portfolio.

It’s not FUD. If the government sends the message that depositors will go down with the ship every bank that isn’t considered too big to fail will see all their uninsured deposits start moving out. Many of them won’t be able to meet their liquidity needs as a result and go into receivership. With every bank that goes into receivership the outflows will only accelerate. People will start to get worried about insured deposits as we hit the limits of what FDIC can cover and insured deposits will start to flow out and into systemically important banks as well, further accelerating the death spiral of all but the biggest banks. This isn’t some made up scenario, start asking people that have underinsured depositors about their money movement plans.

> every bank that isn’t considered too big to fail will see all their uninsured deposits start moving out

Small banks usually had to pay more for deposits and run conservative books for this reason.

I would guess that FRB's loan portfolio is heavy on fixed rates. At least that's what the products they've sold looks like.

Products sold to customers may not be assets held.

They specifically don't resell the mortgages, it's part of their marketing.

I'm not sure i understand the difference here between "a liquidity crisis" and bankruptcy. people want to withdraw their deposits made at low interest rates and invest them with better yields.

The banks have misrepresented their ability to pay out the current deposits.

It's a claim about what would happen given more time. Imagine I owe you a million dollars in cash, and also own a house that is probably worth about $1.5M. Houses are not very liquid: each transaction takes a lot of slow evaluation, you need to find the right person, etc. Best case for turning it into cash at close to its value is about a month, often takes a few months. So if I suddenly needed to pay back my loan to you we could say I'm in a liquidity crisis: given time to liquidate I'm good for it (my net worth is positive) but I don't have the cash on hand now.

On the other hand, if the house is actually only worth $750k, then my issue is solvency. Even taking time to sell the house for as much as possible I won't have enough to pay everything I owe, and will need to go into bankruptcy. And we don't know for sure until I actually try hard to sell the house.

People running into issues of solvency often say that they are running into a liquidity issue, however, through some mix of wishful thinking, hoping for self-fulfilling prophecies, and lying.

No bank in the world could pay out all its deposits immediately.

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