Paul Krugman

@paulkrugman ↗

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Last Checked April 3, 2023

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Sat Mar 11 11:15:14 +0000 2023

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Paul Krugman @paulkrugman

It's not at all clear whether SVB was inherently insolvent. The market value of its investments fell when long rates rose, but its earnings may still have been enough to cover interest on its deposits. But big deposits made it vulnerable to a classic bank run 11/ — PolitiTweet.org

Posted March 11, 2023

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Paul Krugman @paulkrugman

The reason is option value: short rates can go up but not down. Which means that betting on the spread is risky. If and when short rates go up, you're in trouble. They did, and SVB was. 10/ — PolitiTweet.org

Posted March 11, 2023

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Paul Krugman @paulkrugman

Maybe the important point is that all of this looks fairly sui generis. Other banks like SVB could be in the same fix — but which are these similar banks? Probably doesn't herald a wave of bank runs 12/ — PolitiTweet.org

Posted March 11, 2023