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Comment by blitzar | Hacker News Reader

> as of April 13, 2023, First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits

It seems a bit laughable that funny money accounting is allowed to be reported as facts. The loaf of bread I bought 4 weeks ago for $1 that is now stale and mouldy is neither worth $1 nor should be on my balance sheet as worth $1.

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Long-term treasury bonds aren’t like stale bread because the bread doesn’t suddenly spring back to its original edible state after ten years have passed, but the treasuries will eventually repay your capital in full.

The problem is that this full repayment is a decade or more away, and in the meantime you’re receiving a pittance of interest compared to investments you could make today. So if you can’t afford to wait, the bonds you’re holding aren’t worth their full value to anyone you could sell them to.

> So if you can’t afford to wait, the bonds you’re holding aren’t worth their full value to anyone you could sell them to.

Bonds are easy to value if you assume full timely repayment, take the net present value of each payment, and that's what it's worth. (You may disagree about the NPV, if you disagree about the interest rate to use, but the shape of the calculation is clear) Sure, at redemption, it will be worth something else, but USD today and USD in a year are not the same unit, you need a conversion.

The problem is that this full repayment is just objectively not a full repayment. In a standard economic environment with a positive rate of inflation, if I gave you $10 yesterday, and you returned me $10 today, I _lost_ money even though the numeraire suggests that I didn’t.

If you own a building that could sell for $10m to the right buyer after a few months on the market or $2m if you had to fire sell it tomorrow, then that building is worth $10m, not $2m.

Given the cost is estimated to be $13bn, after the assets are wound down "to the right buyer after a few months on the market" the $229.1 billion is pure fantasy

Unless you did have a fire sale and it went for $2M - that's what it's worth at that moment in time. Sure it could be worth $10M in the future, but it isn't right now.

There were no fire sales of Treasuries. They’re actually just worth less. The problem is we treat HTM securities as both inviolable in value and liquid.

If you own a building that it’s 100% certain to be sold for $10m in six months then that building is not worth more than $9.75m today.

That’s not correct. Assuming the $10MM sale is a certainty then the building is worth just slightly less than that, accounting for six months of interest at the prevailing rate.

Assuming the interest rate is around 4-5% as it is now, that means the building is worth a couple hundred thousand less than $10MM. That’s the definition of “slightly less” in the exact scenario you set up.

If you think a couple hundred grand doesn’t matter you are free to wire it to me at your leisure.

Now make six months into six years or sixteen years and you understand the problem better.

This isn't a liquidity problem though - the actual fair market value of the assets that they can realistically expect to get has dropped due to interest rates rising. Someone with $10 million to invest in long-duration government bonds won't pay face value for bonds that pay out $10 million at maturity plus a small amount of annual interest when the government has issued newer bonds with much higher interest payments, they'll expect a discount that accounts for the lower amount of interest paid over the term, but banks have a bunch of bonds like that that are still on their books at face value and haven't been marked to market.

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