[BostonCard]

Of course, part of the problem is that bank regulations on banks this large should not have been loosened by Trump in 2018.  

As soon as I saw the topic I knew this comment would appear somewhere in the thread.

Good reminder to do our best not to politicize things, or this thread will have to be frozen.  There are other places to relitigate political battles from five years ago.

BC

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Seems like a root cause of the problem is that regulators let banks value their bonds at a hold-to-maturity basis; they only have to mark to market when they are actually sold. According to Lawrence Kotlikoff (B.U. Econ prof):



"The trigger for the run on SVB was the sale of a collection of Treasuries that forced SVB to acknowledge that what it sold was worth $1.8 billion less than it had been advertising."



The bonds' value when they were bought seems irrelevant. What is the downside of requiring banks to disclose market values of their portfolio on a regular basis? (genuine question; there must be some issue with that?)

I think the rationale for not marking to market is that it infuses a lot of volatility in cases where there really is an intent to hold to maturity, and it might have the perverse outcome of forcing a bank to liquidate assets and thus realizing the loss.  I think something like this happened in the UK last year, where as a result of a proposed budget, yields on British Gilts went up, causing a crisis with pensions that required the central bank to step in as a purchaser of last resort:

https://www.ft.com/content/93e3cd70-ee96...1e066b34a5

Not exactly the same thing, but a good example of unintended consequences.

BC

[BostonCard]

Of course, part of the problem is that bank regulations on banks this large should not have been loosened by Trump in 2018.  

As soon as I saw the topic I knew this comment would appear somewhere in the thread.

Good reminder to do our best not to politicize things, or this thread will have to be frozen.  There are other places to relitigate political battles from five years ago.

BC

---

Seems like a root cause of the problem is that regulators let banks value their bonds at a hold-to-maturity basis; they only have to mark to market when they are actually sold. According to Lawrence Kotlikoff (B.U. Econ prof):



"The trigger for the run on SVB was the sale of a collection of Treasuries that forced SVB to acknowledge that what it sold was worth $1.8 billion less than it had been advertising."



The bonds' value when they were bought seems irrelevant. What is the downside of requiring banks to disclose market values of their portfolio on a regular basis? (genuine question; there must be some issue with that?)

I think the rationale for not marking to market is that it infuses a lot of volatility in cases where there really is an intent to hold to maturity, and it might have the perverse outcome of forcing a bank to liquidate assets and thus realizing the loss.  I think something like this happened in the UK last year, where as a result of a proposed budget, yields on British Gilts went up, causing a crisis with pensions that required the central bank to step in as a purchaser of last resort:

https://www.ft.com/content/93e3cd70-ee96...1e066b34a5

Not exactly the same thing, but a good example of unintended consequences.

BC