OK, so Silicon Valley Bank, a bank run. Triggered by their losing their capital in long dated Treasuries. OK.
Now the grubby detail. So, if you hold bonds to maturity then you don’t have to mark to market. SIVB was doing exactly that. The bond portfolio had large losses in it because they’d bought long dated Treasuries then interest rates rose. In the portfolio marked hold to maturity you don’t have to crystalise this loss. It becomes more of an opportunity cost than a direct bite out of the capital base.
SIVB had a forced conversion of that hold to maturity portfolio to a tradeable on the market one. Which is when you do have to mark to market. At which point their capital base vanished – those opportunity costs suddenly crystalised into a vanishing of their capital.
One amusement here is going to be watching where ‘Tater goes with this one. Should banks mark to market? Or not? It’s possible to divine either response from his earlier writings. Also, look how lovely and safe government debt is as a savings vehicle, eh?
But the actually important point is, well, who else has that same gremlin on their books. Losses on the hold to maturity portfolio which will bankrupt the bank if crystallised?
My guess – guess – is that it’s quite a lot of people.