What's the basis for that insolvent since September claim? Looking at the end of 2022 financial data shows a bank that's been hurt by interest rates rising, but definitely not insolvent. Is the an alternative definition of insolvent you're using for that statement (beyond liabilities > assets)?

> What's the basis for that insolvent since September claim?

See: https://archive.is/IMgxM / https://twitter.com/ByrneHobart/status/1628779894183272452

as i understand it, they hadn't marked-to-market their hold-to-maturity securities (because that's why you classify securities as htm, so you don't have to mark them to market) but their market value had fallen sharply (because of interest rates rising), so that their liabilities did exceed the actual market value of their assets

in that sense their solvency after about september was just an accounting fiction

i'm not even an accountant though, so please take this with a grain of salt, and let me know if i'm wrong

So yeah their balance sheet calculation did not show it as marked to market, but even accounting for that, they were still solvent at the end of 2022 according to their annual report: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d... page 95 (there were $15B of unrecognized losses mentioned, but even then they were solvent: $211,793M of assets -> $196,641M of assets assuming all Hold-to-maturity marked down to market, which is still more than the $195,498 of liabilities they had.

hey thanks, i wonder where the conflicting calculations (e.g., https://archive.is/IMgxM, posted by 'ignoramous' elsewhere in this thread) came from

byrne hobart (quoted there) cites https://s201.q4cdn.com/589201576/files/doc_financials/2022/q... the quarterly report, which only mentions unrealized losses on afs securities, not htm securities

i see the total assets and liabilities numbers you mention on p. 95 of the 10-k you linked, but i don't see 15 billion dollars of unrealized losses anywhere, though i do see (for example on p. 124) 15724 million dollars of afs securities that had unrealized losses on them; but the unrealized losses themselves were only 1109 million dollars

i don't see anything in either report about unrealized losses on htm (non-afs) securities. in the 10-k (again p. 95) their htm securities are 91321 million dollars, almost 4× the size of their afs securities, and maybe they had about 20 billion dollars of loss of market value on those htm securities?

Re $15b: the line on the balance sheet about HtM notes that they're counting it as $91,321M for purposes of the balance sheet, but in a paranthetical note that it has $76,169M of fair market value (which is a difference of $15,152M).

But yeah that loss almost certainly continued going up in early 2023 as rates kept climbing.

oh, is that what the 76,169 line meant

i couldn't figure it out

thank you

I feel this is the crucial missing bit of information. The rules allow Wiley E Coyote to run over the cliff without looking down.

When I was running a fund we'd always think about the current mark to market. People would get in trouble for marking their books away from the market. How is it that is allowable to pretend things are worth more than they are?

i don't really know the history of the regulation, but it makes some sense to me that, if you buy a 5-year t-bill which will pay out some fixed amount 5 years from now, and you hold it until that maturity date, you shouldn't have to care what kind of crazy irrational things the bond markets are doing during those 5 years because you don't engage with those markets at all; they don't affect you in any way

the t-bills they sold off the other day were not from the 'hold to maturity' bucket but from the other one, 'available for sale', so i'm not clear why the sale (as opposed to the presumably previous marking to market of those bonds) counted as a loss of 1.8 billion dollars

But in that situation your only risk is the thing that actually happened: you have to sell before you want at a bad price. Shouldn't the reporting rules be written so that people have to consider this?

Nobody was pretending, all of the information was public. You are allowed to read about a bank's investments and then decide to join their fund i.e. deposit above the FDIC threshold - unfortunately, a lot of small business owners did not see it that way.

well, as it turned out, they were hedged with a 'fed put'

My understanding is that a commercial bank can be solvent as long as too many clients don’t suddenly demand too much of their assets all at once.

i think you're talking about liquidity rather than solvency

solvency is when your assets (including illiquid ones) exceed your liabilities

I agree, and I have no idea how the "hold to maturity" accounting fiction is justified. It's very strange to me that we let a 200B bank use such different accounting rules than a 250B bank, and most other countries apply those rules to most or all of their banks.

This post facto trying to blame those exercising their fiduciary duty to those they advise, etc. to behave in ways in their own best interests for doing so is really weird. "Blacklist all the investors and directors who resigned" etc. being called for on Twitter.

They made a very risky decision putting all their eggs in one basket. Sure, 10 year bonds are "safe" for the average investor. They are not an average investor.

There is nothing safe about mortgage backed securities.