Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Banking in uncertain times

bitsaboutmoney.com

Post reply on HN
Print view View original

201–210 of 378 posts

Re: Banking in uncertain times

#201

Post by s1artibartfast »

nostrebored wrote: post #183
bombcar wrote: post #146

Earlier quoted context omitted.

This is true, but there can be a lot of slight of hand when talking about dollars and future dollars. Banks run on nominal dollars, and SVB would have remained capitalized if withdrawals hadn't overwhelmed their ability to get ready cash, which caused them to sell at a loss, which spooked everyone, causing a run.

Right, but if they're expected to be toxic you would mark them down nominally as well. It's not like the real losses aren't also nominal when realized. And whether the metric you care about is the real losses or the expected nominal value at maturity depends on whether inflation continues to raise. As this also suggests interest rates increase, you get hammered on both sides.

No, because they still are with the same number of dollars, it it just that the dollar itself is worth less that it was.

If you say you have $100 worth of bonds, this is accurate at all points of time you hold it. What you can buy with $100 may be changing from year to year.

Re: Banking in uncertain times

#202

Post by bombcar »

s1artibartfast wrote: post #191
bombcar wrote: post #142

Earlier quoted context omitted.

It seems to me (being uneducated in the matter) that if a bank is holding US government debt (treasuries) as "hold to maturity" that the US Government should have some ability to offer a line of credit against those assets for cases like this one was. Or that the bank should be able to say "depositor X transferred $100 million to Chase, so we sent Chase a wire for $10 million and treasuries marked HTM worth $90 milli…

>Or that the bank should be able to say "depositor X transferred $100 million to Chase, so we sent Chase a wire for $10 million and treasuries marked HTM worth $90 million" or something. Why? HTM bonds are not cash so they are not interchangeable. This is like if you were forced to accept a 10 year IOU in place of cash from your employer.

Regulations that required banks (directly or indirectly) to buy government bonds should also require the banks to accept interchange of them when needed.

Banks exist at the whim of the gov't, it can require things for stability.

Re: Banking in uncertain times

#203

Post by bubbleRefuge »

O__________O wrote: post #100
bubbleRefuge wrote: post #85

There 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…

Stating obvious, this is only true until debts exceed a leverage US government has to inject currency it magically creates or utilize other financial tools it has available. At the point they are unable to do so, that’s no longer the case, system reaches a critical point for which recovery will take real assets at fair market value on the global market. Ironically, US’s down fall may be its own failure to believe its…

If Banks make bad loans and those loans( or investments) are marked to market bringing the bank out of compliance with Capital requirements, then it gets shutdown.

Re: Banking in uncertain times

#204

Post by insonable »

stanleydrew wrote: post #127
UncleMeat wrote: post #124

Earlier 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.

The original asset threshold over which banks were subject to "enhanced prudential standards" in the 2010 Dodd-Frank bill was $50B. In 2018 the requirement was amended to >$250B in assets, or at the discretion of the Fed for banks over $100B. SVB was reportedly at $210B in assets.

Re: Banking in uncertain times

#205

Post by Kye »

bombcar wrote: post #147
Kye wrote: post #88

Earlier quoted context omitted.

Native English speaker here too. TWL (Today We Learned) I always assumed it was one one of those odd manglings that gained traction, like irregardless.

Apparently it's spelled "deserts" and pronounced "desserts" https://www.merriam-webster.com/words-at-play/just-deserts-o...

Yes. That's why people think it's "desserts."

Re: Banking in uncertain times

#206

Post by marcosdumay »

bombcar wrote: post #142
lordnacho wrote: post #104

As 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,…

It seems to me (being uneducated in the matter) that if a bank is holding US government debt (treasuries) as "hold to maturity" that the US Government should have some ability to offer a line of credit against those assets for cases like this one was. Or that the bank should be able to say "depositor X transferred $100 million to Chase, so we sent Chase a wire for $10 million and treasuries marked HTM worth $90 milli…

> US Government should have some ability to offer a line of credit against those assets

What is the difference between what you are saying and just buying back the bonds before maturity?

Anyway, governments do usually have all kinds of lines of credit against bonds. And when there is a difference, it's for the benefit of the government.

Re: Banking in uncertain times

#207

Post by jameshart »

pg314 wrote: post #197
s1artibartfast wrote: post #170

Earlier quoted context omitted.

If those assets are in your hold to maturity portfolio, they are still worth $100m. This return is guaranteed unless the Federal Bank defaults on those treasuries.

> If those assets are in your hold to maturity portfolio, they are still worth $100m. They are still worth $100m at maturity . $100m in ten years is (usually) worth less than $100m now. Do you really want to pretend that a ten year bond you purchased when inflation and the interest rate were near zero, is worth the same when inflation and the interest rate go up to say 10%? What about inflation of 100%? In nominal te…

You can’t calculate NPV. You can only estimate it.

You can value something at its current market value, if the asset is one that has such a thing. And fair market value will generally correspond to what you would estimate to be net present value, plus whatever risk premiums and holding costs and so on that the market is accounting for.

Re: Banking in uncertain times

#208

Post by 2143 »

notahacker wrote: post #179
2143 wrote: post #112

Earlier 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?

The money is mostly created as debt, with the obligation to repay more money. So it's not "not giving anything back in return". A company wants some money to fund business expansion. So it borrows $1m with a promise to pay $1.06m back, which it can fund because it has customers. The bank in turn can fund this by borrowing $1m and promising to pay back $1.03m (when lending activity increases this money comes from the…

Makes sense. Thanks!

Re: Banking in uncertain times

#209

Post by Acumen321 »

bubbleRefuge wrote: post #200
Acumen321 wrote: post #194

Earlier quoted context omitted.

This is a very popular but false 'take the gist of it as true' misunderstanding. Yes, banks do "create" money. No, it is not out of thin air. It absolutely does come from deposits. An example of how banks "create" money, is person A has $100. A deposits it. The bank lends that $100 to B. Now B has $100, but A also still thinks they have $100, even though they just have a number on a piece of paper. They system goes f…

There is not a dependency on deposits in order create loans. This is false. Banks can make loans to the extend of demand for loans at the banks terms. Deposits have nothing to do with it in terms of funding. The bank must be in compliance with capital requirements and reserve requirement in order to be in the federal reserve system . As Mosler says (founder of MMT) The loan guy does not call the deposit guy at the ba…

The loan guy absolutely does need to make sure the bank has the cash to make the loan. You can't loan more money than you have. What happens when B goes to withdraw it from the bank to buy a car or house if it isn't there?

If banks can loan more than they have by say borrowing the money at a lower rate than they lend it, that invalidates your basic premise of banks creating money. They wouldn't have created it, they would have borrowed it.

Re: Banking in uncertain times

#210

Post by bubbleRefuge »

zhte415 wrote: post #113
bubbleRefuge wrote: post #85

There 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…

> There is allot of financial illiteracy regarding the banking system. And nor does the balance sheet become inexplicably unbalanced. It issues bills, a liability, which will cancel out as an asset unless it sells them, or takes a value from it's balance sheet capital, or gets interbank funding (which still balances, because that's another bank's asset). You're not wrong a bank can fund it's lending, indeed there's t…

The accounting is like this. Bank A is in compliance for the current period of time under examination (capital requirments and reserve requirements). Bank A makes a loan L1 to person B. This is a contract. Bank A has an asset in L1 on its balance sheet(this improves its capital ratio) and person B has L1 on her balance sheet as a liability. Person B makes a deposit of L1 amount into Bank B. Bank B has a liability of L1. Person B has an asset of L1 which is her deposit which she owns. Finally, Bank A makes a reserve payment to Bank B of L1. These reserves come out of the reserve account that each bank has at the Fed. The reserves maybe borrowed in the Federal Funds market on demand so long as the bank is in compliance.
Post reply on HN