Posted on 03/13/2023 10:58:44 AM PDT by Red Badger
Fallout from the Silicon Valley Bank collapse has directed attention to a $620 billion ticking time bomb in the banking system that has the potential to spell doom for the financial system.
SVB's meltdown was partly caused by a chasm between its assets and what they were worth in the market. Eventually, SVB sold some of those assets, spooking investors and triggering a run on the bank. But SVB isn't alone, as banks across the United States were sitting on $620 billion in unrealized potential losses at the end of last year, per the Federal Deposit Insurance Corporation.
That hole illustrates why authorities at the Federal Reserve, the Treasury Department, and the FDIC were so eager to stave off contagion or panic spread from SVB's demise across the banking sector.
The reason for this predicament is that banks compiled a plethora of bonds and treasuries during times when interest rates were hovering near zero. But now, the Federal Reserve has begun jacking up rates in an effort to combat inflation, which has caused many of those assets to plunge in value.
This is because higher interest rates mean that new bonds accrue higher rates of returns for investors. As a result, older bonds have comparatively lower rates of return, rendering them less desirable for investors and therefore triggering a plunge in the value of older assets.
$620 billion of unrealized losses, overall equity 2.2 trillion. If a run on the banks would happen it could be fatal even for several large US banks like JP Morgan and Citi. This crisis isn’t over. The US Treasury simply bought some time. pic.twitter.com/2xNvfIrN9b
— Kim Dotcom (@KimDotcom) March 13, 2023
A consequence of the $620 billion unrealized potential loss phenomenon is that banks may quickly find themselves with less cash on hand than their books might have suggested.
Taking note of the liquidity needs of banks, the Federal Reserve announced plans to offer banks a facility to help them meet depositor withdrawals Sunday. The government has also moved to backstop depositors at SVB in the hope of curtailing panic from its demise from rippling across the industry.
The FDIC guarantees deposits up to $250,000, but many SVB deposits eclipsed that threshold. The government announced plans on Sunday to back those deposits of over $250,000 as well.
SVB caused panic among investors last week when it revealed that it sold treasuries at a loss, inciting a run on the bank. On Thursday, customers withdrew $42 billion in a single day. For comparison, Washington Mutual "lost $16 billion dollars over 10 days" during the financial crisis of 2008, according to Sen. Mark Warner (D-VA).
The bank was the 16th largest federally insured bank and was taken over by regulators Friday after announcing it needed to raise over $2.2 billion to stay solvent.
It certainly seems the Fed will be forced to stop hiking interest rates.
The Fed is the problem....
yep
which means we will pay
That is a very big number, and it is 100% due to the banking sector being too cheap and or foolish to engage in interest-rate risk management. The bankers should all be replaced and the Boards of directors fired.
All profit taking by stock selling and shorting of bankers and directors should be disgorged and delivered to taxpayers who have to pay for this insanity.
So much for Brandon’s moronic interest raising policies which tanked the banks.
Congress is the problem. Running multi-trillion dollar deficits in bad times and good does to the economy what a diet entirely of batter fried bacon and ice cream will do to.your heart.
Yes, one way or another, we the people will pay.
So, T-Bills, US Bonds and similar top Bonds are made worthless by first the Fed keeping interest rates low artificially for 15 years and now by suddenly raising them to try and hide Biden killing the economy intentionally, those Bonds when “marked-to-market” or sold are underwater and the US Bonds meant to be the most rock solid item in the market is OVER VALUED.
This will totally piss off China.....................
“a chasm between its assets and what they were worth in the market. “
Beg Big and lost.
So, the holders lose-
Sell it all, and pay % on the dollar first in line.
or . . .
Give the Big Guy his 10%, and roll it all up into Too Big To Fail again, again, and have all the little people pay for it.
Guess what they’re gona choose 3 . . . 2 . . . 1 . . .?
All this is a choreographed dance of global proportions, intended to wipe out US debt via inflationary policies..............
How should they have managed the risk?
It only takes one or two chinks in the armor to bring down a Ponzi Scheme
True, but some of them may be Norks..................
My take is banks have been financing NWO Democrat WEF take over America agenda with back door crypto schemes and the house of cards they created is falling apart before their ‘great reset’ was able to hide the deceit.
There are multiple ways to manage interest rate risk.
Forwards
Forward rate agreements
Futures
Options
Swaps
Caps, floor, collars
This is basic financial engineering to manage risk. And yes, most hedge instruments cost money. But when you have that much capital resting on the interest rate, it is just basic good management to manage the risk against interest rates dissolving the value of your T-bills, especially when inflation is surging and you know the FED will want to raise the interest rates.
I work in the oil and gas industry - companies typically manage the commodity price in my industry. If in the financial industry investing in T-bills, dollars are your commodity, and interest rates are your risk, along with the counterparty risk.
These bankers and their Boards did not do their job.
Hey, it’s 2008 again. GREAT - now I can save up some money and buy Bitcoin at $0.09 a piece when they debut next year!
As a society, on many levels, we’ve been kicking the can down the road since the 2008 financial crisis...and that, itself, occurred after years of kicking the can down the road. It is a wonder to see this done (mostly successfully) for so long...but you have to wonder when the world will figure out that “the Emperor has no clothes.” When that happens, it will not be a fun time.
_____x millions of 1040 refunds to be raided by “fees” “wording” and “facilities” at the teller windows, and most, the regular worker, won’t recognize the plan.
The poor, just like OBodyMortagecare, exploited.
These bankers and their Boards did not do their job.
- - - - - - -
I’m not sure they didn’t. Maybe their goal was getting help from the government and they achieved that.
“Unrealized losses” can be quickly realized.
It doesn’t take long.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.