highalpine

Mark-to-Market Marches Towards Extinction

Interesting discusssion, but: 2 points

1. Banks are geneally levered at least 8:1 and most about 12:1 (8%tangible capital). The big ones more. If 29% of the asset base is subject to mark-to-market accounting, it doesnt take much of a move to impair tangible capital.

2. Watch out for TRUPs (trust preferred securities) in the smaller bank's investment portfolios. These are essentially bank holding company loans with no market and with a provision in them that lets the issuing banks PIK the dividend payment. IF PIK'd the impairment is going to hurt. But they only go PIK if the bank's in trouble. The smaller banks that hold these things are only in trouble if the security is PIK'd. Catch 22.