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HSBC to Buy UK Arm of Silicon Valley Bank

bbc.co.uk

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Re: HSBC to Buy UK Arm of Silicon Valley Bank

#151

Post by fsckboy »

HWR_14 wrote: post #88
shawabawa3 wrote: post #33

Earlier quoted context omitted.

> It's said that no bank (even the best-managed) can withstand a fullscale bank run I keep reading this but this should not be true Any bank will hit liquidity issues on a full-on bank run, as not 100% of a banks assets will be marketable, but central banks will provide emergency liquidity in these situations But banks should not hit insolvency issues like SVB did

The line is a little blurry. You can be underwater in mark-to-market terms on a bond portfolio, but be fine if you guess the timeline for redemption and can hold them to maturity. Banks estimate what percentage of their assets will be held to maturity. So needing extra liquidity causes insolvency.

> hold them to maturity

the PV of a bond is the risk adjusted, discounted (at current rates) FV of the bond (and interim coupons). The losses are real, they don't magically come back, they just magically appear to realign like your ETA does as you get close to your destination after losing hours in a traffic jam.

Re: HSBC to Buy UK Arm of Silicon Valley Bank

#152

Post by freeone3000 »

mattmanser wrote: post #139
freeone3000 wrote: post #134

Earlier quoted context omitted.

The money that they lose is going to be assessed on all FDIC banks. It doesn't come out of general government funds. So it'll probably be paid for by increasing bank fees on customers.

According to the news reports the Fed are guaranteeing the loans, not the FDIC. I think you're talking about the stuff that they were originally saying over the weekend.

I think the press release is more accurate than the news reports, which are mostly quoting the press release badly.

Re: HSBC to Buy UK Arm of Silicon Valley Bank

#154

Post by HWR_14 »

fsckboy wrote: post #151
HWR_14 wrote: post #88

Earlier quoted context omitted.

The line is a little blurry. You can be underwater in mark-to-market terms on a bond portfolio, but be fine if you guess the timeline for redemption and can hold them to maturity. Banks estimate what percentage of their assets will be held to maturity. So needing extra liquidity causes insolvency.

> hold them to maturity the PV of a bond is the risk adjusted, discounted (at current rates) FV of the bond (and interim coupons). The losses are real, they don't magically come back, they just magically appear to realign like your ETA does as you get close to your destination after losing hours in a traffic jam.

I mean, the bank lost money. However if there is not a bank run they make enough off the interest of their deposits to be solvent. It's not unlike an airline owing more on their fleet than it is worth. As long as they keep doing airline things, they'll service their debt and be fine. If they don't, then they'll go bankrupt.

Re: HSBC to Buy UK Arm of Silicon Valley Bank

#155

Post by testrun »

fsckboy wrote: post #151
HWR_14 wrote: post #88

Earlier quoted context omitted.

The line is a little blurry. You can be underwater in mark-to-market terms on a bond portfolio, but be fine if you guess the timeline for redemption and can hold them to maturity. Banks estimate what percentage of their assets will be held to maturity. So needing extra liquidity causes insolvency.

> hold them to maturity the PV of a bond is the risk adjusted, discounted (at current rates) FV of the bond (and interim coupons). The losses are real, they don't magically come back, they just magically appear to realign like your ETA does as you get close to your destination after losing hours in a traffic jam.

This is wrong. Losses are only realised at redemption or sale.

Re: HSBC to Buy UK Arm of Silicon Valley Bank

#156

Post by fsckboy »

testrun wrote: post #155
fsckboy wrote: post #151

Earlier quoted context omitted.

> hold them to maturity the PV of a bond is the risk adjusted, discounted (at current rates) FV of the bond (and interim coupons). The losses are real, they don't magically come back, they just magically appear to realign like your ETA does as you get close to your destination after losing hours in a traffic jam.

This is wrong. Losses are only realised at redemption or sale.

the rules of accounting say losses are only recognized when realized (mostly because they don't want you playing the game in the other direction and exaggerating your worth), but the cashflows and market prices tell the true story, a different story than book value.

You don't buy bonds (or mortgage backed securities), you buy the future cashflows they represent. Let's say you have a billion dollars, and you buy future cashflows worth a billion at a 2% interest rate, then interest rates jump to 6%: you still own the same future cashflows, but those cashflows are not worth a billion any more, they're only worth a third of that (give or take). now you don't have the flexibility to sell those cashflows to finance a billion in other investment activities. Now your stock is not worth what it was, so if you sell stock you get less to finance investment opportunities. Will your bank be OK if you hold what you hold to maturity? you will get the cashflows, which if you have perfectly balanced cash flows-in with cash flows-out means you break even, but (a) you didn't do that and (b) that's not the business you are in, to sit in stasis for 20 years: you are much less valuable, your opportunities have dried up, and current customers do not want to do business with you any more. Sharks have to keep swimming or they suffocate (which may not be true for sharks, but it is true for banks) A bank is not a treasure chest waiting to be dug up, it's a McDonalds that needs people to order fries with that.

Roku put something like $500 million into the bank, that money gets invested by the bank overnight into very safe govt paper, but during the day it is turned back into cash assets of the bank, and it disappeared going into Roku's account and without being turned into govt paper again. It is not the case that Roku will get its $500 million back by sitting on that paper, there is no paper and the cash is gone.

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