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371 sats \ 2 replies \ @felix OP 10 Mar 2023 \ parent \ on: ELI5 – What's happened to Silicon Valley Bank? ☠️ bitcoin
"Duration missmatch", aka "Temporary Loss" is purely playing around with semantics IMO.
The reality is the capital is locked and your treasury is worth less on secondaries.
Am I wrong?
(Not sure what they are actually worth, just quickly calculated 4%,delta * 10 years)
EDIT: Okay, it's more like 2.5% yield delta... You get the point
Imagine you were a bank and someone lend you $100
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What happened to Lehman was that they lend out 90 and these 90 were the problem
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What is happening to SIVB right now is that they lend out 90 but the remaining 10 are the problem
Thats "temporal conguence" aka duration missmatch. They can both turn into the same problem of a bankrun. What's supposed to happen is that you pay out your customers with the 10 and slowly liquidate the 90 to add to what previously was 10.
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In the first bankrun you run out of the 10 and the 90 are worthless.
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In the second bankrun you fail to liquidate the 10 in the first place. In a sense that's much worse. In another sense it's better since the domino effects are less impactful - except if it leads to people bankrunning other banks aswell
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Doesn't negate anything I said though. Same mechanics, the same fundamental concepts, and slightly different rules.
Also, try explaining this to a 5-year-old. 🥴
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