When a bank buys another bank, they mark to market the securities portfolio. So if they wanted to sell the securities they could at the current market prices and not sustain a loss.
What price they pay for the entire bank is complicated. It depends on the quality of the loan portfolio, the stability of the deposits, how much overhead they can eliminate, market share and market presence….
Okay, that’s a great deal for bigger banks it would seem. Unless the old bank has
some skeletons in their not easily evaluated assets. Seems like a can’t lose deal.
I would have to read the article. But if half the depositors left any bank all at once, they would be crippled. A typical bank has anywhere from 75% to 90% of their deposits out in loans. You can’t get your money back on loans you have lent out until the borrower pays you. So if half your depositors left you all at once, you would be in trouble.
That is why SVB’s bond portfolio is so troubling. That portfolio is meant to be your liquidity. You are not trying to maximize your return on your bond portfolio. You are just trying to earn something on your liquidity. You are making your money off of your loan portfolio and fee income.
Bankers always screw up when they get too cool for school. Commercial banking has been around since the caravans crossed the deserts. The only thing that has changed is the delivery mechanisms. But the principles of banking are still the same.
Yes it is better to be the predator than the prey. The banks that went long on their bond portfolio in a rapidly rising interest rate environment are the prey (and very slow moving prey at that).
I love the content 51 is sharing (hate the headline)…wish more threads were like this.
@NRGcoog the article i posted also talks about the psychology of a run on banks and gave some historical examples.
©Copyright 2017 Coogfans.com