Arnold Kling looks at the failure of Silicon Valley Bank and argues for mark-to-market accounting for banks. When interest rates go up, the value of a portfolio of fixed-rate bonds or mortgages goes down. Roughly speaking, if the bank paid $100 to buy a long-term bond with an interest rate of 2-1/2%, and now the interest rate on a comparable bond is 5%, the bank’s bond is worth about $50.
Simple improvement to banking regulations
Simple improvement to banking regulations
Simple improvement to banking regulations
Arnold Kling looks at the failure of Silicon Valley Bank and argues for mark-to-market accounting for banks. When interest rates go up, the value of a portfolio of fixed-rate bonds or mortgages goes down. Roughly speaking, if the bank paid $100 to buy a long-term bond with an interest rate of 2-1/2%, and now the interest rate on a comparable bond is 5%, the bank’s bond is worth about $50.