Big National Banks are salivating
Who do you think will buy then out of their debt when the pshit hits the fan? Who do you think will hold all of that long term debt?

Quote:All American banks with at least $100 billion in assets would be subject to the new requirement, which makes them hold a layer of long-term debt to absorb losses in the event of a government seizure, according to a joint notice from the Treasury, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corporation.

I believe banks deemed systematically important already have to have this debt and the new rule requires all banks over $100B in assets to comply. This is a direct result of the recent bank failures, which were smaller banks. In theory, if a bank’s losses exhaust its capital, the additional layer of debt can be “bailed-in,” that is, converted to equity, providing an additional cushion against the bank’s insolvency.

(08-29-2023 01:57 PM)VA49er Wrote:  I believe banks deemed systematically important already have to have this debt and the new rule requires all banks over $100B in assets to comply. This is a direct result of the recent bank failures, which were smaller banks. In theory, if a bank’s losses exhaust its capital, the additional layer of debt can be “bailed-in,” that is, converted to equity, providing an additional cushion against the bank’s insolvency.

That is pretty close to spot on. The unintended consequence of that is [usually] those long term holdings are severely devalued when event that can bankrupt a large bank occurs.

So when they "bail in" they are taking some pretty big market value losses on top of the schidt they are using those funds to bail themselves out of to begin with.

I was under the impression these are usually long term Treasury Bonds. Typically, credit events are caused by defaults, which tends to create a situation where a flight to safety actually causes government bonds to rise in value. The current situation where a loss of value in long term treasury bonds is driving much of the problem is not the typical credit event--and has largely been caused by the fastest tightening cycle in Fed history. The whole situation is as atypical as you can get. That said---there are plenty of more traditional default driven credit events that seem to be brewing if things dont turn around fairly quickly.