did you mean SVB? they were insolvent, not just illiquid.
that is not technical definition of insolvency. if you can cover your debts but need time to do so, thats the definition of being illiquid, not insolvent.
my understanding of their books is that they could not cover their debts. the change in market conditions drove down their bond portfolio to the point of insolvency.
i said time is about liquidity, not solvency. i never said gaining money in the future makes you solvent in the past.
Granted, I think there is also a strong argument that shutting them was as much to stop the ability for the run to continue? Such that even with that loan option (that, again, didn't exist last week), something had to stop the run.
Any definition I can find defines insolvent as the inability to pay debts as they come due.
Insolvent is when your current liabilities exceed the current market value of your assets.
Otherwise, one could remain forever solvent by simply putting $100 into a total market index. Sure, I owe $1m right now, but in 1,000 years, my $100 will be worth more than enough to pay off the debt.
Which is fine but not all that useful. We know bank runs make banks fail.
> Insolvent is when your current liabilities exceed the current market value of your assets.
If I have a bank, and it's solvent (by jeaff's definition), and then it faces $42 billion in withdrawals in one day, then it's still solvent by jeaff's definition. It may be illiquid (unable to come up with $42 billion in cash in 24 hours), but the assets still exceed the liabilities. (Or, they might not even have been illiquid, if they could sell the assets at full price within a day.)
So, no, your argument does not disprove jeaff's definition.
I don't suppose you would like to pay a dollar for eighty cents, though.
The hold-to-maturity rules seem reasonable to me, and it's insane that SVB actively and voluntarily turned themselves from 'insolvent under a particular accounting interpretation' to 'actually insolvent'.
What is there besides the technical sense?
Their liabilities (deposits) can be called on demand, at any time, and they couldn't cover the value of those liabilities. This isn't complicated. Imaginary worlds where the bonds were worth more are irrelevant.
I think the reality isn't that there's a desired outcome or conspiracy to move things in a direction. Reality is often boring.
This is really just a few banks in a country of over 4,000 banks. Shutting down SVB, Signature, and maybe a few others isn't going to dramatically change the banking landscape toward some desired end-game. Visa and Mastercard will still be giants, none of these banks are part of the 33 large banks that get extra stress-test scrutiny or the 30 Global Systemically Important Banks, etc. This will impact the banking sector. It's likely that we'll go back to some Dodd-Frank rules that Trump repealed. Some banking profits might be impacted by FDIC assessments. Banks might reassess their risk profiles. Some might offer higher interest rates to lure deposits. However, it's hardly creating something that goes toward some radical end-game.
I mean, if your end game is "Trump shouldn't have rolled back certain Dodd-Frank protections," then yes I could see that happening. But this isn't really paving the way for something like CBDC. That doesn't mean CBDC won't happen, this just really doesn't do anything to help it along. Really, the case for CBDC is more made by the 2-3% tax Visa and Mastercard are putting on our economy. "We need a secure digital payments system that doesn't cost merchants (and by proxy consumers) 2-3% on most of their purchases," is really unrelated to a few bank failures.
I'd also note that the Fed is basically made up of the banks - not in any conspiracy theory way. The regional Fed boards are mostly chosen by the member banks of that regional Fed (with some being appointed by the Board of Governors who is appointed by the President and confirmed by Congress). The FOMC (Federal Open Market Committee) has 5 members that are regional Fed presidents (chosen by the regional Fed board who is chosen by the member banks) and 7 that come from the Board of Governors (President/Congress appoint/confirm). These aren't people who are plotting the end of commercial banking and trying to pave the way to some government-controlled single-bank.
And I don't believe that a CBDC would need to be some overbearing thing. The US needs a better way of making payments. Europe has regulated fees and also makes it really simple to send money between people. Here we're left with weird things like multi-day ACH, banking hours, and third-party cash-sending apps.
But I digress, this isn't really something that offers some major end-game. We'll probably see some regulations to ensure that banks don't face this issue in the future and that's about it.
> SMB and Signature bank suffered from a liquidity crisis rather than a solvency crisis
Solvency is complicated when we're talking about things that aren't cash. Let's say that you hold treasuries that the government will redeem in 10 years for $1.1M. You bought them for $1M and they're paying 0.96% interest per year. Normally, you could just sell them for somewhere around $1M because people are happy to buy US government debt. Now let's say the government is offering 2.5% interest on new debt. If I buy your treasury and hold it, I'm only getting $1.1M at the end. If I buy a new one, I'm getting $1.28M at the end. That's a big difference. I'm not going to buy your's at $1M despite the fact that it might nominally be worth $1M. Maybe I'll only give you $0.9M. $1.1M-$0.9M would mean a $200k gain which isn't as much as the $280k gain I'd get on new debt, but the maturity is a year closer. Still, you're losing $100k.
Ok, but that's just a liquidity issue for you, right? If someone just gave you the liquidity to hold you over until maturity, you'd get your $1.1M and be whole. Well, sorta. Realistically, with high interest rates and inflation, you're likely to lose some customers over time (who leave for banks that can offer them better rates) and you're recouping less due to inflation outpacing your investment. Plus, if someone just gives you the liquidity, you're asking them to lose money unless you're willing to pay them interest on that liquidity. Of course, if you're willing to pay them interest on that liquidity, then we're back to you being insolvent since the interest on that liquidity would be outpacing the interest in the treasuries you hold.
Assets on companies' books often don't get reevaluated every day and what something is worth can also be a bit complicated - people can disagree.
Insolvency means the value of their liabilities exceeds the value of the assets. The bank owned long term bonds that lost value and could no longer cover deposits. That's what happened, that's why people started pulling money from the bank.