Leta i den här bloggen

2023-03-10

‘Silicon Valley Bank is just the tip of the iceberg’

 More lenders are struggling to keep deposits from fleeing

Rising interest rates have left banks laden with low-interest bonds that can’t be sold in a hurry without losses. 

So if too many customers tap their deposits at once, it risks a vicious cycle.

Authorities have devoted much of their time and attention since the 2008 financial crisis to ensuring the stability of large “systemically important” banks such as JPMorgan Chase & Co. and Bank of America Corp.

“There are obviously larger institutions that are also exposed to these risks too, but the exposure tends to be a very small part of their balance sheet,” 

Bloomberg 10 mars 2023 

https://www.bloomberg.com/news/articles/2023-03-10/one-bank-folds-another-wobbles-and-wall-street-asks-if-it-s-a-crisis

 

The four biggest U.S. banks lost $52 billion in market value Thursday.

Index of banks posts biggest drop since pandemic roiled markets nearly three years ago

Rising interest rates have caused the value of existing bonds with lower payouts to fall in value. Banks own a lot of those bonds, including Treasurys, and are now sitting on giant unrealized losses. 

Large declines in value aren’t necessarily a problem for banks unless they are forced to sell the assets to cover deposit withdrawals. Most banks aren’t doing so, even though their customers are starting to move their deposits into higher-yielding alternatives. Yet a few banks have run into trouble this week, sparking fears that other banks could be forced to take losses to raise cash.

Banks don’t incur losses on their bond portfolios if they are able to hold on to them until maturity. But if they suddenly have to sell the bonds at a loss to raise cash, that is when accounting rules require them to show the realized losses in their earnings.

Those rules let companies exclude losses on their bonds from earnings if they classify the investments as “available for sale” or “held to maturity.”

The Federal Deposit Insurance Corp. in February reported that U.S. banks’ unrealized losses on available-for-sale and held-to-maturity securities totaled $620 billion as of Dec. 31, up from $8 billion a year earlier before the Fed’s rate push began.

WSJ 9 March 2023

https://www.wsj.com/articles/bond-losses-push-silicon-valley-bank-parent-to-raise-capital-125e89d4


Banks are now sitting on record mark-to-market losses

Marc Rubinstein Bloomberg 18 oktober 2022 

https://englundmacro.blogspot.com/2022/10/banks-are-now-sitting-on-record-mark-to.html


10 banks that may face trouble in the wake of the SVB Financial Group debacle

Silicon Valley Bank wasn’t well positioned for rising interest rates, leading to losses and a dilutive capital raise. Other banks show similar red flags.

MarketWatch 9 March  

https://www.marketwatch.com/story/the-10-banks-that-may-face-trouble-in-the-wake-of-the-svb-financial-group-debacle-50d6e49e



The alchemy is “the belief that money kept in banks can be taken out whenever depositors ask for it”, 

Lord Mervyn King, former governor of the Bank of England.
His book is called The End of Alchemy.

Martin Wolf, FT 31 May 2016







Inga kommentarer: