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Banking in uncertain times
131–140 of 378 posts
Re: Banking in uncertain times
#132Liquidity coverage ratios EU vs. US: US has been stagnant for a decade, while EU has almost doubled. (Lobbyist casts money against government. It's very effective.)
Re: Banking in uncertain times
#133Earlier quoted context omitted.
I just don't get this about the system in the US. If you keep creating money out of thin air — which as per my admittedly naive understanding is equivalent to just printing money without giving back anything in return — wouldn't it ultimately lead to a collapse or a hyper inflation? Like it did in Venezuela a few years ago (???). Why is the US seemingly immune to this kind of thing?
In US the fed determines how much money is printed. The EU, UK, Japan, Switzerland, and China have similar central banks. Most countries do, but those are some major players (I left some out). Basically, if you print the right amount of money, it works. So they get smart Econ experts to guess how much money to print. And as long as they get close enough it doesn't cause hyperinflation.
This isn’t an accurate description of the mechanics of money printing in the US, the UK or the EU.
Re: Banking in uncertain times
#134As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…
> why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Because at maturity, the bank gets back its money. So it is perfectly valid to say "in ten years, this $100m bond is worth $100m...and I intend to hold it for ten years, so it's worth $100m [equivalent] today". The "I intend to hold it" is the relevant part of the valuation, though.
[deleted]
Re: Banking in uncertain times
#135Read this all the way to the disclaimers at the bottom. It's just a fantastic piece of writing, digging deep into some of the unseen structures that underlie our society. I'm not close enough to the banking system to judge the truth of it, but it was beautiful. PS If you are on email lists, make sure to respond occasionally to the author. It's hard out there and they are shouting into the void. If a piece makes you s…
It seems to avoid discussing a rather basic issue, which is that as Fed interest rates rose, the interest rates on deposits (i.e. individual savings accounts) did not increase at all due to bank executives wanting to harvest more of that pie for themselves. Hence people seem to have an incentive to move money out of banks and into money market accounts that were giving much higher returns on those deposits.
The history here is illuminating: (Jan 1 2023)
> "During the 1980s, savings rates climbed as high as 8%. Deregulation caused deposit interest rates to stay higher than financial institutions could sustainably support, which contributed to banking failures during that decade. In the 1990s, savings account rates decreased significantly, typically sitting between 4% and 5%. The 2000s kicked off with a recession, and savings rates fell to between 1% and 2%. Following the financial crisis of 2008, savings account interest rates fell to historic lows—below 0.25%."
https://www.forbes.com/advisor/banking/savings/history-of-sa...
See also: https://twitter.com/biancoresearch
Re: Banking in uncertain times
#136First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution. Just wondering about this "desert" word, in context: > I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer…
I believe this is a British person saying “during dessert”?
Nope, guess not.
Re: Banking in uncertain times
#137> The losses banks have taken on their assets are real. They already happened. They are survivable if banks remain liquid. But… they aren’t real yet? They haven’t been realized. If held to maturity they will be paid back in full. Which I know the author is fully aware of. So I don’t understand this point. > I would suggest one has at least one backup financial institution. If one hypothetically does not, I would obse…
> But… they aren’t real yet? Barring something extremely abnormal happening, aren't low-yield bonds seeing real losses already due to inflation? Like it doesn't have to be the spot price we're talking about, aren't many of them toxic already and others expected to track there?
> aren't low-yield bonds seeing real losses already due to inflation?
But bank deposits aren't in inflation adjusted dollars.
Re: Banking in uncertain times
#138Earlier quoted context omitted.
But the entire point of computing current assets is to understand the effects of rapid withdrawals from the bank. If you are trying to predict the future value of the bank or how much money they will make then looking at the value at maturity makes sense. But the regulatory system doesn't (or shouldn't) care about that. The regulatory system should be concerned with estimating and mitigating the risk of sudden bank f…
I believe this is what various "stress tests" are for. If your bank is a certain size you have to basically do scenario planning for situations like ”what if 25% of your deposits leave overnight and you have to sell securities that you didn't plan to sell?” As I understand the situation, SVB was just under the required size to submit to those stress tests.
to my understanding, they themselves lobbied legislators to put them under that size (by increasing the ceiling).
Re: Banking in uncertain times
#139There is allot of financial illiteracy regarding the banking system. For example, heard an NPR reporter this morning talking about a bank not having money to loan because of depositors fleeing. These are vestiges of the Gold standard. There is no loanable funds market. That is, the funding for loans does not come from deposits. It comes from thin air. Banks create loans which then become deposits. So called "Bank Mon…
I just don't get this about the system in the US. If you keep creating money out of thin air — which as per my admittedly naive understanding is equivalent to just printing money without giving back anything in return — wouldn't it ultimately lead to a collapse or a hyper inflation? Like it did in Venezuela a few years ago (???). Why is the US seemingly immune to this kind of thing?
There’s over-confidence espoused by economists, the idea that we can measure inflation with any kind of precision is challenging, never mind building on top of this shaky foundation that there are behaviours which regardless of circumstance will lead to a given outcome such as hyper inflation.
This is not to say that hyper inflation isnt a severe risk, it is. it’s to say that the mechanisms through which it’s created or avoided are not well understood nor proven.
Re: Banking in uncertain times
#140Earlier quoted context omitted.
USDC may have instant 24/7 access to global markets. But why did the price of USDC drop to 90 cents this weekend. It isn't immune bank runs.
They held cash at SVB. They will probably smarten up and start holding short term treasuries and avoid as much as possible bank liabilities. Just a guess.
Tha majority of their reserves were in short term tresuries, only a fraction of thier reserves were stored in 4 different banks as cash in order to be able process redemtions.