No, that is not true.

Selling the bonds now at their current valuation or taking on debt and hold them to maturity lead to roughly equivalent outcomes.

The MtM losses are real.

No matter how many times you say this it's not going to be true. If you hold bonds to maturity you get the principal back. If you sell them at market rates you don't. Those are different outcomes.

Nobody is talking about taking on debt at market rates to float the bonds. The bank died because it couldn't do that and couldn't raise capital in other ways either. Now we are talking about the government backstopping things, which is a whole different ballgame.

You still have to pay the interest on the loan.

If your bond 10y bond you bought two years ago pays 1.5% and you need to take on a loan at 3.5% for 8 years to be liquid, then you are still around 16% in the red. You will find that this is also roughly what the market will discount the bonds.

The loans we are talking about are from the government and don't need to stick to market rates if the government doesn't want them to.

Having the government give zero-interest loans doesn’t quite satisfy the “won’t cost anything to taxpayers” part, does it?

Depends on where they get the money. The FDIC doesn't take public money at all. The Fed can create money in various ways.

You’re the one who said “The loans we are talking about are from the government and don't need to stick to market rates if the government doesn't want them to.”

Yes, and? What did I say that contradicted that statement, and what is wrong with that statement?

I’m lost. The FDIC doesn’t take public money but it will receive loans from the government?

If you mean that the Fed will give an zero-interest loan with the bond as collateral that’s the same as just buying it right away at par and eat the loss.

Put otherwise, the Fed lends money at almost 5% now. If it does it at 0% it will be earning less than if it was done at the proper rate.

In either case, the treasury will get less money in the end. That looks like costing money to the taxpayers.

Doesnt the Fed receive interest on bonds/money 'loaned to the government' - but any profits are then sent to the Treasury?

So if the taxpayers are paying interest to the fed, who then feeds those profits back to the trasury, and the treasury uses that money for scenarios such as this - doesnt that automatically mean the treasury/FDIC is using BOTH public taxpayer money (laundered through the fed back to the treasury) AND the bank payments to the FDIC in order to cover that?

Are these two separate piles of money - and they will not take from the "profits" the Fed made on taxpayer debt on money printed by the Fed to the USG, but only from the FDIC fund that the banks pay fees to?

Something always feels 'fishy' when you dont have a deep grasp of the structure... so, please ELI5?

And where does the government get the money to lend to the bank? Right, it issues Treasury debt for which it pays a market-determined rate of interest. In other words, taxpayers would be subsidizing any below-market rate loans.

The FDIC also has lots of money, and got none of it from taxpayers.

Doesnt the Fed receive interest on bonds/money 'loaned to the government' - but any profits are then sent to the Treasury?

So if the taxpayers are paying interest to the fed, who then feeds those profits back to the trasury, and the treasury uses that money for scenarios such as this - doesnt that automatically mean the treasury/FDIC is using BOTH public taxpayer money (laundered through the fed back to the treasury) AND the bank payments to the FDIC in order to cover that?

Are these two separate piles of money - and they will not take from the "profits" the Fed made on taxpayer debt on money printed by the Fed to the USG, but only from the FDIC fund that the banks pay fees to?

Something always feels 'fishy' when you dont have a deep grasp of the structure... so, please ELI5?

If you need money now and not in the future, there is cost. The fact that the principal gets paid at maturity is irrelevant - a risky bond does have interest rate sensitivity, too.

Of course, that's why SVB failed. But the FDIC doesn't need the money now (well assuming they successfully stop the dominos from falling).

I would have thought that the deposits will leave SVB/what is left of SVB pretty soon, so the FDIC will need to cover that rather now than in the far future.

The point of doing this is that the deposits hopefully won't feel the need to leave. After all, the BoA account you were planning to move them to doesn't have a public letter from the Treasury Secretary saying it's insured to no limit by the FDIC.

Also let's not forget that the customers profited from the interests paid by the bonds.

If SVB was paying 4.50% (as they claim on their website), then even if the customer takes a 5% loss, it would be only a 0.50% realised loss.

I genuinely don't understand why the regulator doesn't push for that unless there is some "lobbying" involved.

>Selling the bonds now at their current valuation or taking on debt and hold them to maturity lead to roughly equivalent outcomes.

Correct. This is literally why bond prices move inversely to changes in interest rates.

The people criticizing you here are ignoring carrying costs (which are fundamental to finance math) and assuming that default risk is the only form of risk (which is obviously false).