So the banks had bonds in their balance sheets that went down in price because of the rising interest rates. If they are in need for money, they sell them quickly but don’t get 100%. So basically not all checking account money can be satisfied. In my understanding, this brought down SVB.
The Fed took over these bonds for 100% as a measure of stabilization. There is no issue here because bonds will be repaid for 100% most probably. Basically the Fed is taking over temporary losses of the banks. When the bonds are repaid the negative equity will vanish.
No, this isn’t a mark-to-market loss, as the article clearly states—these are operating losses, literally more cash flowing out than flowing in. This is because the Fed is trying to raise short-term interest rates, and to do this effectively it has to be willing to pay out its own interest target. These interest payments now exceed the interest it receives on its portfolio of government bonds and mortgage-backed securities. If this goes on for long enough then the Fed’s equity will become negative.
The Fed took over these bonds for 100% as a measure of stabilization. There is no issue here because bonds will be repaid for 100% most probably. Basically the Fed is taking over temporary losses of the banks. When the bonds are repaid the negative equity will vanish.