SVB Bond Losses

The money is not tied up in bonds. Because those bonds are liquid and can be sold on the market in exchange for dollars. And when depositors ask for their money the bank is forced to sell those bonds at a big loss to get dollars. That results in assets < liabilities. Which is insolvency.

The problem isn’t what they bought it’s what they sold. It was all correlated. Loans to startups were going bad while startups were pulling deposits since they weren’t getting funded. So you’re taking losses while losing capital. Doesn’t really matter what else you’re holding at that point if it doesn’t happen to be skyrocketing right now. Long term bonds will never be that thing, but at any point in time almost nothing else would be, either.

Yep. An important concept is a "margin call". Funds are allowed leverage but within limits, and when the value of their assets (e.g. bonds) decreases then the leverage can increase. They need to put up more collateral (e.g. cash) to reduce the leverage to within agreed limits. But suppose that many funds are in the same situation at the same time! Now that collateral is more expensive and the leveraged assets are worth less. This can lead to collapses across the sector, which the BoE i

You would be able to unwind these positions gradually and the markets are relatively liquid for MBS and super liquid for T-Bonds. The problem is that you would be unwinding these positions after the interest rates have moved up, i.e. at a tremendous loss. Rates go up - bond prices go down and your assets are not worth as much. They did not want to do this right away and book a few billion in losses. It would be a hard decision for anyone to make. They bet that the rates will move lower soon but,

Couldn't someone with a lot of cash buy them, pay back the depositors without having to sell assets, then hold the assets until maturity, and then make a profit (presumably having bought them at a discount)? As far as I understand, the nominal value of assets still exceeds the obligations?

It's not that they were holding bad assets, it's that they put too much money into assets that took too long to mature. They were betting that they wouldn't need that money sooner than that, and that's the bet they lost.

Funds selling bonds to cover their losses on equity side.

Who repays the loan if the index crashes?

That analogy doesn't work. They were selling bonds to financial professionals, who had to have complicated ISDA agreements to even enter into these purchases. Part of their job is to analyze the assets they are buying. Its reasonable to expect them to do so.

Bank deposit is a debt owed by the bank to the customer. So by assuming the deposits they assumed this debt. On the other hand they will also have assumed the assets of the bank (including these problematic bonds).