TR EMERITUS

I explain many issues which are not covered by media, especially our local state mouthpiece.

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The common knowledge now is banks hold securities. Interest rates have gone up, so those long term securities create huge unrealised losses in banks. That is true. This works out to about US$600b as at Dec 2022 for all commercial banks guaranteed by FDIC.

But what people do not understand is that banks manage their interest rate gaps and would have hedged their asset-liability mismatch. That means unrealised securities losses do not translate to losses at the bottom line because it is compensated by hedged income.

MAS has said there is no risk for Singapore Banks. This is wrong. The regional banks are getting hit. But if an international bank collapses, Singapore banks may and probably get hit. The problem will be counter party exposures. Shit hit the fan when it comes to money market and derivatives.

So panicking investors elevate what is essentially a liquidity problem into a solvency problem in the case of SVB, and maybe others.

Patrick Low

* Article first appeared on Down The Rabbit Hole.

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