71–80 of 113 posts
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The loans are backed by assets. They will be seized if the loans were not paid back.
Who pays if those assets are fraudulently overvalued rubbish?
Here is my admittedly ignorant question about this: is it possible that the institutions borrowing these funds are actually using those funds not for relatively low-risk purposes (e.g., paying taxes), but instead to trade "overnight"? Similar to how a high-net-worth individual can borrow against their assets for a very low rate and then turn around and invest those cheap-interest-rate funds into higher-return (i.e.,…
I follow this topic on real vision with info from some insiders and big name finance people. The whole thing is a mess. Like spaghetti code with thousands of if statements and no comments, and none of the "developers" (in the Fed or in the trading desks) is answering any questions.
The big take from all this is that the most profitable way forward for the banks now is to creatively mess up as much as they can and declare "out of my control" reserve emergency. What finance people find fascinating is there are no leaks to the public. No whistleblowers and no regulator questioning it in general.
The official explanation doesn't make much sense. Both the taxes and the basel 3 provisions were known well in advance and the projections of the profits are within normal ranges. It doesn't make sense that they were caught by surprise.
Here is my admittedly ignorant question about this: is it possible that the institutions borrowing these funds are actually using those funds not for relatively low-risk purposes (e.g., paying taxes), but instead to trade "overnight"? Similar to how a high-net-worth individual can borrow against their assets for a very low rate and then turn around and invest those cheap-interest-rate funds into higher-return (i.e.,…
> is it possible that the institutions borrowing these funds are actually using those funds not for relatively low-risk purposes (e.g., paying taxes), but instead to trade "overnight"? Yes. That's the purpose. You want banks repo'ing Treasuries so they don't dump them (or their mortgages) to pay taxes (or employees or creditors). Repos finance the asset side of the borrower's balance sheet. Tying fungible dollars to…
If you see comments complaining about how misleading the article and headline are, they were probably about that one, not this one.
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Why would the Fed allow this? Who created the regulation saying they needed a threshold and why aren't they putting more teeth into it? It seems silly to me to have a regulation without proper enforcement and it seems insane to me that the Fed is complicit.
The banks have assets that are worth money they can post as collateral to borrow the cash to meet reserve requirements. Or would you rather have banks unloading massive stacks of treasuries at market close daily to meet their cash needs, creating volatility in bond markets? Repo lending means banks don’t have to unwind their positions daily due to a cash shortage, because they have other assets they can post as colla…
Why was the cash reserve regulation introduced? What problem did it address?
Why, if banks are not able to comply with this regulation without "unloading massive stacks of treasuries at market close daily", are they allowed to load up on "massive stacks of treasuries" flaunting the cash reserve regulation in the first place?
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What happens if banks systematically are unable to pay these loans back?
> What happens if banks systematically are unable to pay these loans back? And how would that happen exactly? But if it did, the Fed would extend the loan, or loan more. Not very complicated.
In case like me you wondered "Why would anyone need money overnight? (or just for a second, actually)" EDIT: As the commenter below points out, it is actually over very short periods to even out a 2 week average period, but the mechanic is indeed as explained AFAIK the "overnight loans" are a vehicle to dodge the reserve requirements for banks. In theory the bank is not allowed to fall below a certain reserve thresho…
This is not true in reality. The only reserve requirements on financial institutions are on household deposits, and it's peace-of-mind that if 10% of Joe Public depositors show up one day demanding their money the bank won't have to deny.
Functionally there are zero reserve requirements on the vast major of financial institution assets. It's been a long time since the banks have been anywhere near reserve constrained. Many central banks don't even have reserve ratios (like mine in Canada).
Sure this stuff is complicated, but you can literally look it up on Wikipedia. The econ 102 money-multiplier model of deposits is not how modern banking works.
>It is an organized method by which the Fed facilitates regulation dodging for the financial sector.
This is borderline conspiracy theorizing, and it's kind of sad that people blindly accept it.
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The point, more broadly, is that these are loans with a quick expiry baked in. The money comes into and poofs out of existence on a relatively short timescale (ranging from overnight to a couple of weeks); we aren't going to see an extra ~$3T in circulation. They're providing lubrication in the repo markets, they aren't just shoveling cash into the banks' vaults. Most people misunderstand this point when discussing r…
What happens if banks systematically are unable to pay these loans back?
In case like me you wondered "Why would anyone need money overnight? (or just for a second, actually)" EDIT: As the commenter below points out, it is actually over very short periods to even out a 2 week average period, but the mechanic is indeed as explained AFAIK the "overnight loans" are a vehicle to dodge the reserve requirements for banks. In theory the bank is not allowed to fall below a certain reserve thresho…
Generally speaking, banks try to maintain a steady reserve ratio over the whole period, but there's some wiggle room to play it a little loose and just borrow a lot on the last 1 or 2 days of the measurement period.
Source: I used to work at the Fed and studied these patterns.