But this illiquidity has repercussions beyond the securitization market, I think. Won't this impact both book value and origination income for all banks? Lending has just taken a dramatic turn. And asset values can't be far behind.
Either that or the panic subsides, the fed and GSEs intervene, and happy days are here again.
There seems to be a (very) widespread misconception about banks. Most of them do not live in a mark-to-market world, at least not for loans held in portfolio (as opposed to loans held for sale) and for at least a portion of their portfolio holdings. Consider a plain, old boring lender like AF. They are an old-style thrift with a business model like the Bailey Building & Loan in "Its A Wonderful Life". They take deposits from the community and invest them mostly in residential mortgages to squeaky clean borrowers. The loans go on their books at par plus origination costs. They stay that way until t he loan is paid off, transferred to the held for sale category (rare for these guys), or goes bad. It doesn't matter if the bid is 50 cents on the dollar for the loan: it stays on their books at par. Same goes for deposits, securities classified as "Held To Maturity" and borrowings.
Now liquidity could be an issue for some banks, but not too many. I have seen some horrendous disasters passing for a bank. In virtualy ever y one of these sorry cases, long before any kind of liquidity issue arose, either the bank de-levered and righted itself, got sold, or the regulators stepped in (very rare in the last 10 years).
In the case of someone as boring as AF, liquidity is not much of an issue in even the worst market environment. Deposits generally are not market sensitive, and even troubled banks seem to have no problems hanging onto sufficient deposits because the gummint stands behind them. As a member of the local FHLB (heck, their CEO was chairman of the local FHLB's board last I checked), they can get an advance any time they wish. As long as you are a member and have assets on deposits, the FHLBs will send members large sums of cash virtually instantaneously.
The only way for this sort of boring bank to get into trouble is for masses of loans to go bad and for recoveries to be low. There are certainly exceptions, but most banks have relatively conservatively underwritten loan portfolios. Community and regional banks generally are pretty conservative on lending, and those that are not are the notable exceptions. This is so because the regulators put a ton of pressure on banks who color outside the lines.
So I think the regional and community banks as a whole are a little pressed by what is going on, but the guys who have really caught it are the ones who orginate and sell large volumes of loans (big liquidity needs), te money center guys (big liquidity needs and Gawd knows what is on those balance sheets), and non-bank lenders (many of which are extra-crispy by now).