I think things start to get interesting though if the regulator can't raise enough money from the sale of SVB's assets to offset the deposits. Then the government will have to cover the deposits with "tax-payer dollars"; however, this was always going to be the case with the $250k deposit insurance. That is be definition tax-payers covering deposit losses.
I think things start to get interesting though if the regulator can't raise enough money from the sale of SVB's assets to offset the deposits.
The Fed can cheat on that by taking the bank's held-to-maturity securities onto its own balance sheet. It's a bailout "in the present" but will pay itself off because the Treasury never defaults.
They're providing funds based on the face value of the bonds purchased which won't reach maturity for 10 years instead of the actual market value of said bonds.
Imagine if you went into a bank to refinance and said you wanted the value of your home ten years in the future, would any bank accept such a deal?
In a capitalist system, everything is worth what the market values it at. That's why in the housing collapse in the mid-2000s people were upside down on their mortgages. The market correction caused the market value of those homes to drop below the amount owed on the existing mortgages.
What's going on with the fed and SVB is a distortion of capitalism and will only create bigger problems in the future.
I think things start to get interesting though if the regulator can't raise enough money from the sale of SVB's assets to offset the deposits. Then the government will have to cover the deposits with "tax-payer dollars"; however, this was always going to be the case with the $250k deposit insurance. That is be definition tax-payers covering deposit losses.
I’d be shocked if they did, but they could go the Covid route and simply print more money
The Fed can cheat on that by taking the bank's held-to-maturity securities onto its own balance sheet. It's a bailout "in the present" but will pay itself off because the Treasury never defaults.
It's only cheating if the fed overpays for them, isn't it?
That's exactly what's happening.
They're providing funds based on the face value of the bonds purchased which won't reach maturity for 10 years instead of the actual market value of said bonds. Imagine if you went into a bank to refinance and said you wanted the value of your home ten years in the future, would any bank accept such a deal?
In a capitalist system, everything is worth what the market values it at. That's why in the housing collapse in the mid-2000s people were upside down on their mortgages. The market correction caused the market value of those homes to drop below the amount owed on the existing mortgages.
What's going on with the fed and SVB is a distortion of capitalism and will only create bigger problems in the future.