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Banking in uncertain times

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Re: Banking in uncertain times

#211

Post by daveguy »

kmod wrote: post #190
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.

$100m future dollars , which are less valuable than present dollars.

That's hedging against inflation (which is definitely something they should have been doing for long term bonds). Interest rates directly affect the sale price of a bond, and it could have been hedged against, but it wasn't required. They won't do it unless it's required. Banks over 50 billion need to be regulated again (and they should lower it to 10 billion too).

Re: Banking in uncertain times

#212

Post by bombcar »

marcosdumay wrote: post #206
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…

> 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.

It would be some form of emergency credit or something similar to the interbank loans, basically doing what they've had to do with FDIC anyway.

Or the bank could have bought TIPS instead, I guess.

Re: Banking in uncertain times

#213

Post by HWR_14 »

CraigJPerry wrote: post #133
HWR_14 wrote: post #126

Earlier quoted context omitted.

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.

Interpreting "printing money" to replace the more technical "controlling the size of the monetary base[1]" seems reasonable. How is that incorrect?

Unless you're talking about literal printing press operations, "the fed tries to tweak the money supply to control inflation as one of its dual mandates" seems like an absolute correct, if simple, explanation of why we don't have hyperinflation.

(I know tone is hard to convey. I am serious about learning if I have a misunderstanding)

[1] https://www.stlouisfed.org/on-the-economy/2018/july/federal-...

Re: Banking in uncertain times

#214

Post by bubbleRefuge »

Acumen321 wrote: post #209
bubbleRefuge wrote: post #200

Earlier quoted context omitted.

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…

see my other reply on the balance sheet operations above.

Re: Banking in uncertain times

#215

Post by cm_silva »

Acumen321 wrote: post #209
bubbleRefuge wrote: post #200

Earlier quoted context omitted.

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…

Weird, and I thought fractional reserve banking was a thing.

https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

Re: Banking in uncertain times

#216

Post by hnfong »

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…

> 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.

Yes, the Fed basically did this.

See the recently (Sunday) announced "Bank Term Funding Program", which basically says if banks hold securities from the Federal government, the Federal Reserve will accept it as collateral for a loan, the collateral valued at par.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

Re: Banking in uncertain times

#217

Post by misssocrates »

pjc50 wrote: post #50
spir wrote: post #47

Stablecoins are conspicuous in their absence in patio11's post. Personally, I believe that patio11's loathing of crypto has made him incurious about its potential. But that's not the point here. The point is that stablecoins are about to become a Very Good Deal for ordinary people: In the near future, stablecoins like USDC will become immune to bank runs because the US Dollar reserves backing them will be held in veh…

This is essentially fanfiction, as stablecoins so far have been very opaque about what they do with their reserves. Especially Tether. (largely because the mechanics of holding $60bn in treasuries would attract some questions about KYC which stablecoins are unable to answer)

The fanfiction is that banks can be trusted. USDC and Tether as of now have a better track record than even some big banks like SVB.

Re: Banking in uncertain times

#218

Post by Acumen321 »

bubbleRefuge wrote: post #214
Acumen321 wrote: post #209

Earlier quoted context omitted.

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…

see my other reply on the balance sheet operations above.

There are many problems with your understanding, but the simplest total failure of your model is that if the bank did just get the money from somewhere else to lend, it is not creating it.

You are not describing the bank "creating" money, which they actually do as per how I described. You are describing the bank borrowing money.

Re: Banking in uncertain times

#219

Post by pjc50 »

misssocrates wrote: post #217
pjc50 wrote: post #50

Earlier quoted context omitted.

This is essentially fanfiction, as stablecoins so far have been very opaque about what they do with their reserves. Especially Tether. (largely because the mechanics of holding $60bn in treasuries would attract some questions about KYC which stablecoins are unable to answer)

The fanfiction is that banks can be trusted. USDC and Tether as of now have a better track record than even some big banks like SVB.

What's Tether's holding breakdown? How do you know they're not exposed to the same bond duration issue?

Re: Banking in uncertain times

#220

Post by prewett »

bjacokes wrote: post #193
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.

You're saying that if a bank paid $100m for low-yielding bonds in 2021 which are now worth $80m, those bonds should be valued at $100m on the bank's balance sheet. What if a different bank pays $80m today for the same bonds? Should they be able to show an immediate $20m increase in their book value because those bonds are "worth $100m"?

The problem is that they are worth $100m if held to maturity (you get your $100m back, ergo their value is $100m if held to maturity), but the current price is $80m, because who wants to buy a bond at 0% when you could get around 5% at the next Treasury auction.
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