Banking in uncertain times • Hacker News Board

Re: Banking in uncertain times

#241

Post by forsakenTadpole » Wed, Mar 15, 2023, 5:14 PM UTC

mikeyouse wrote: post #105

dsr_ wrote: post #42

Earlier quoted context omitted.

If you are storing more than $250K (the standard insurance limit), then you need to distribute your deposits. It is as simple as opening accounts in N/250000 banks, although if you are close to an integer or expect the cash to increase substantially, you might want more than that. So for individual people, this affects... maybe 5%. It certainly affects small companies, but those are entities that we, as a society, ex…

It's just not remotely practical to keep dozens of banks accounts with $250k in them for most companies. Many payrolls are larger than that, if you're renting a venue for an event, it'll be larger than that. Obviously well-staffed finance teams could shuffle funds endlessly, but there's just no economic value to creating treasury jobs for the sake of it. We'd be much better off just upping the FDIC limit to something…

recently had a call with Fidelity about this. many places including Fidelity will automatically split your cash between many banks on the bank end. for Fidelity the money in my Cash Management account will be split into up to 20 different banks which means that up to $5 million is FDIC insured. https://www.fidelity.com/why-fidelity/safeguarding-your-acco...

Re: Banking in uncertain times

#242

Post by bubbleRefuge » Wed, Mar 15, 2023, 5:14 PM UTC

Acumen321 wrote: post #222

cm_silva wrote: post #215

Earlier quoted context omitted.

Weird, and I thought fractional reserve banking was a thing. https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

It is (was) a thing, the idea works exactly the same way. Person A deposits $100, bank lends $90 to B, $10 goes to reserve (if 10% reserve rate). System thinks there is $190 instead of $100, so money is "created". As of 2020 in the US the reserve rate is 0%: https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Person A does not need to make a deposit to fund load for Person B. If bank is in compliance they can make the loan.

Re: Banking in uncertain times

#243

Post by notahacker » Wed, Mar 15, 2023, 5:15 PM UTC

hnuser847 wrote: post #175

alxmng wrote: post #143

Earlier quoted context omitted.

Because: 1) taxation destroys money. 2) new money can be absorbed by economic growth. Imagine you have $100 in an economy and 100 apples. $100 is added, so there’s $200/100 apples. Inflation might occur. But if you make 100 more apples, so there’s $200/200 apples, the ratio of money to goods didn’t change, and you wouldn’t get inflation. That’s an extremely contrived example, but it gets the point across. Considering…

Even in this example where inflation doesn’t occur, consumers will never benefit from the productivity gains that allowed producers to make more apples. Something clearly changed that allowed more apples to be produced. Maybe a significant amount of capital was invested in more machines, or a new, faster growing cultivar of apple was developed. In any case, the entire benefit of the free market economy is that compet…

Sure, that's why no consumers have ever benefited from any productivity gains ever...

Central banks don't fix the price of apples. They simply make it possible/easier for cultivators of apples to obtain capital to invest in more machines or developing new cultivars of apples. The alternative is that cultivators have to try to find the capital by borrowing more expensively from a fixed supply of stored wealth. From the point of view of people holding the stored wealth, the arms race for better products at lower prices becomes a zero sum game where it's a winning move not to just hold onto the cash and let other people take the risks. Unsurprisingly, this does not benefit consumers, or the productive.

Re: Banking in uncertain times

#244

Post by bryananderson » Wed, Mar 15, 2023, 5:15 PM UTC

dragonwriter wrote: post #184

hn_throwaway_99 wrote: post #125

Earlier quoted context omitted.

> The "I intend to hold it" is the relevant part of the valuation, though. Yup, and definitely anticipate there will be major new regulations in this area. A huge part of SVB's book of bonds were categorized as "Hold to Maturity". And, legally, if you mark bonds as HTM, you are not allowed to hedge against their interest rate risk. Basically, the regulations say that if you're hedging against interest rate risk, you…

> Yup, and definitely anticipate there will be major new regulations in this area. It already happened. The new regulation is that the Fed now has a liquidity backstop for banks holding this asset class, using cash loans with a set maximum term against the par value. Apparently the Fed decided “if we treat it this way for capital adequacy, and we provide liquidity backstops for banks for other asset classes based on…

This backstop only applies to existing holdings. Banks can't go out today and load up on hold-to-maturity assets and expect the Fed to backstop them tomorrow with loans at par value. Presumably the next step is to regulate HTM holdings so that this won't be necessary again, or else you're creating a moral hazard.

Re: Banking in uncertain times

#245

Post by s1artibartfast » Wed, Mar 15, 2023, 5:16 PM UTC

hnfong wrote: post #216

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…

> 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 gover…

There is a world of difference between the FDIC offering loans to be paid with interest on securities and forcing other Banks to accept it in lieu of real currency.

The Proposal is closer to the idea that you should be able to pay your cash debt with stock valued at your purchase price, and not at the current market price.

It would mean that a bank that owes another bank $100 could instead pay with Bond currently valued at $50, and then go out on the market and buy two identical new bonds with the money they saved.

Re: Banking in uncertain times

#246

Post by bubbleRefuge » Wed, Mar 15, 2023, 5:18 PM UTC

alxmng wrote: post #143

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?

Because: 1) taxation destroys money. 2) new money can be absorbed by economic growth. Imagine you have $100 in an economy and 100 apples. $100 is added, so there’s $200/100 apples. Inflation might occur. But if you make 100 more apples, so there’s $200/200 apples, the ratio of money to goods didn’t change, and you wouldn’t get inflation. That’s an extremely contrived example, but it gets the point across. Considering…

100% . Exactly and if "money" lands in the accounts of agents (people, businesses) who do not spend it, its not inflationary. If I have 10 trillion dollars in my account, but I do not use it. Its not inflationary. This is called a demand leakage. Savings is a demand leakage. Counterintuitive.

Re: Banking in uncertain times

#247

Post by bostik » Wed, Mar 15, 2023, 5:20 PM UTC

daydream wrote: post #141

echion wrote: post #111

Earlier quoted context omitted.

> > 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? [...] So I don’t understand this point. If people withdraw their deposits, the bank will have to deliver the money somehow...by selling the assets that have lost money. So the point is that although, if nobody withdraws, the losses are survivable, if enough people w…

Yes, if the bonds must be sold to cover withdrawals then the losses become realized (real) at that point. But not before.

From all the information I've gathered, there is an unstated aspect to this.

If any number of HTM bonds are sold to cover withdrawals, then all of them must be revalued and losses realised on the whole lot.

Re: Banking in uncertain times

#248

Post by bubbleRefuge » Wed, Mar 15, 2023, 5:22 PM UTC

hnuser847 wrote: post #175

alxmng wrote: post #143

Earlier quoted context omitted.

Because: 1) taxation destroys money. 2) new money can be absorbed by economic growth. Imagine you have $100 in an economy and 100 apples. $100 is added, so there’s $200/100 apples. Inflation might occur. But if you make 100 more apples, so there’s $200/200 apples, the ratio of money to goods didn’t change, and you wouldn’t get inflation. That’s an extremely contrived example, but it gets the point across. Considering…

Even in this example where inflation doesn’t occur, consumers will never benefit from the productivity gains that allowed producers to make more apples. Something clearly changed that allowed more apples to be produced. Maybe a significant amount of capital was invested in more machines, or a new, faster growing cultivar of apple was developed. In any case, the entire benefit of the free market economy is that compet…

Central Banks allow us to pay each other and regulate banks to operate in the best interest of the economy by making 'good' loans. You are describing a gold standard or fixed monetary system. These systems have lead to deflationary collapses time and again. Without getting off of the gold standard as it was defined we would have never funded WW2 which was the larges money printing event in US history equating to 22% of GDP in government deficits.

Re: Banking in uncertain times

#249

Post by CraigJPerry » Wed, Mar 15, 2023, 5:22 PM UTC

HWR_14 wrote: post #213

CraigJPerry wrote: post #133

Earlier quoted context omitted.

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 co…

>> Interpreting "printing money" to replace the more technical "controlling the size of the monetary base[1]"

These are different things.

Printed money is cash (or currency) and it represents a small amount of the total money in use, just under 3% in the UK. I don't have the figure to hand for the US but it's comparable, less than an order of magnitude difference. Printing money isn't a significant driver of the size of the monetary base, currency is (more or less) printed to replace the notes & coins that are guessed to have been lost or damaged. Talk about printing money, especially as a means to expand the monetary base, is usually misguided.

The monetary base consists of currency in circulation + reserve balances.

Reserve balances in the US, since March 2020 (Fed reserve requirements changed to 0%), refers only to the balance recorded in the account at the central bank for a given commerical bank (or other approved user of reserves). Reserves are money but they're a special kind of money that can't be spent in the economy. They're only usable by the central bank and institutions who are licenced to hold reserves at the central bank (predominantly commercial banks). They're not phyiscal (reserves used to include actual cash in the vault back when there were reserve requirements). Reserves, like most money today, just exist as rows in a DB on a computer.

There's an unlimited supply of reserves available to commercial banks (via the discount window), they are created on demand as needed from nothing by the central bank and charged at the discount rate in unlimited supply. A commercial bank today cannot run out of reserves.

>> the fed tries to tweak the money supply

The fed doesn't control much of the money supply, most of our money is created as commercial banks issue new loans. There's a common misunderstanding that commercial banks operate as intermediaries lending deposits, but they don't.

Re: Banking in uncertain times

#250

Post by 4gotunameagain » Wed, Mar 15, 2023, 5:23 PM UTC

Given the fact that the losses will not be realised unless depositors massively withdraw (i.e bank run), what is the role of media (including youtube, blogs etc) in this ?

If we didn't have a system which deliberately amplifies catchy headlines such as "banks are failing" wouldn't that bank run be avoided ?