> SMB and Signature bank suffered from a liquidity crisis rather than a solvency crisis
did you mean SVB? they were insolvent, not just illiquid.
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.
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.
i said time is about liquidity, not solvency. i never said gaining money in the future makes you solvent in the past.
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.
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 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'.