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Banking in uncertain times

bitsaboutmoney.com

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Re: Banking in uncertain times

#271

Post by bubbleRefuge »

Acumen321 wrote: post #254
bubbleRefuge wrote: post #237

Earlier quoted context omitted.

I disagree . And language can get tricky here. You don't need deposit amounts in order to make loans. There is a bunch of gymnastics under the hood of the transaction I described but none of it requires consumer deposits.

You start a bank, I come to take out a loan and I want it in cash since I am buying a used car this afternoon. You have no cash since you said you don't need it, are just going to create it. Where does the cash come from? If you get it somewhere else, like the FED, you clearly aren't creating it, the FED is, right? If you need to involve the FED (which you don't as per how I described) then the FED creates the money,…

Moving the goal posts. Loans are contracts that create deposits. What you do with your deposit is a separate operation.

Re: Banking in uncertain times

#272

Post by Analemma_ »

lifty wrote: post #33

I have been seeing conflicting opinions from people in the financial know-how. On one hand, patio11 says that you can ignore this and that the banking system is very resilient. On the other hand, him and others mentions that you need to use 3rd party providers in order to distribute your deposits in order to have full insurance coverage. Is there any way for a non sophisticated person to avoid these headaches? Otherw…

If you have more than $250,000 in cash, keeping it in checking accounts is just dumb. Open a TreasuryDirect account and start buying T-bills... they're paying 5% right now, way more than a checking account.

Re: Banking in uncertain times

#273

Post by s1artibartfast »

jasode wrote: post #163
echion wrote: post #116

Earlier quoted context omitted.

> 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.

>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". But that valuation model is not perfectly valid. It's only partially valid under limited scenarios. As many comments have already pointed out, the issue is the bank has customers with demand deposits . The customers can demand withdrawal of their money anytim…

>You can't use value securities as "mark-to-intended-optimal-future" as an alternative to "mark-to-market" for purposes of insolvency risk calculations.

I think this is exactly correct, but I dont think that is the purpose and scenario reported on their financial statements. I think it is fine to report valuation in terms of "mark-to-solvent future", as long as the appropriate data is provided to enable insolvency risk calculations, and the "mark-to-solvent future" model is not presented or confused with a insolvency risk model.

If an investor does not understand how HTM assets are accounted per regulation, but they are accurately reported, confusing the models is an investor error, not a bank reporting error.

My understanding is that banks provide clear reporting, and are transparent with their HTM portfolio.

HTM securities are typically reported as separate noncurrent assets; they have an amortized cost on a company's financial statements.

Re: Banking in uncertain times

#274

Post by makomk »

photochemsyn wrote: post #135
mooreds wrote: post #25

Read 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 histo…

It's not discussed here, but banks probably couldn't increase their interest rates to be competitive with money market accounts etc because the whole root cause of the problem is that their deposits were backed up with long-term fixed interest rate bonds that paid substantially below the rate that someone could get by buying a bond now, and therefore below the return on money market accounts etc. How bad of a problem this is depends on how sensitive to interest rates the banks' customers actually are.

Re: Banking in uncertain times

#275

Post by jnwatson »

jasode wrote: post #163
echion wrote: post #116

Earlier quoted context omitted.

> 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.

>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". But that valuation model is not perfectly valid. It's only partially valid under limited scenarios. As many comments have already pointed out, the issue is the bank has customers with demand deposits . The customers can demand withdrawal of their money anytim…

Exactly. If you have a portfolio of 100% HTM bonds, your income schedule is completely predictable, down to the cent at every moment in time.

But your deposit demand is unpredictable and must be modeled. I don’t think even Taleb would have the scenario of “on Friday, you’ll lose $40b of deposits.” The bank would have had to be sitting on billions of T-bills, which ain’t gonna happen.

It seems like every bank is a tweet away from destruction.

Re: Banking in uncertain times

#276

Post by makomk »

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…

Banks do create money out of thin air, but depositors fleeing does in fact limit their ability to loan money. Here's how that works: every time a bank loans money, they create an asset (the repayment they're owed) and a matching liability (the actual money sitting in someone's account). So long as this stays within the bank or outflows match with inflows, everything works. However, if money starts flowing out of the bank overall for whatever reason then the trick no longer works - and that includes if the money is being transferred out by customers other than the ones being lent to, such as their employees or suppliers. The main consequences of this are usually that one bank can't be substantially more aggressive in lending or offer substantially different interest rates than everone else, which of course affects demand to borrow money from the bank.

Re: Banking in uncertain times

#277

Post by [deleted] »

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…

[deleted]

Re: Banking in uncertain times

#279

Post by spir »

lordfrito wrote: post #221
spir wrote: post #181

Earlier quoted context omitted.

For your objection to refute my thesis, you'd need to explain how a world with stablecoins that are immune to bank runs, where those stablecoins are held in next-gen wallets and can be swapped into any asset in the world 24/7 any time you want at the click of a button, is not a superior UX vs. today's bank deposits.

> you'd need to explain how a world with stablecoins that are immune to bank runs... Wait... I need to explain this? I don't even believe in it. I'm not really interested in arguing theoretical constructs. You yourself admitted that just last weekend a stablecoin dropped to 88 cents on the dollar (while my bank dollars were still worth one dollar each). Before I prove anything, why don't you start by proving (heck ju…

Over the weekend, before an FDIC settlement was announced, uninsured SVB deposits were reportedly trading between $0.75 and $0.90 among private sellers.

In other words, both USDC and uninsured SVB deposits had the same market response over the weekend. But every USDC holder had unfettered access, whereas only large SVB depositors were able to access the informal market of private sellers.

I want you to remember this interaction because by the end of the decade, there will be over $1 trillion of USD stablecoins in circulation (in today's dollars), and at least one of the five largest banks in America will run a major stablecoin product of some kind, such as their own stablecoin, redemptions for an existing coin, or consumer on/off-ramps to the crypto financial system.

Re: Banking in uncertain times

#280

Post by jnwatson »

bubbleRefuge wrote: post #257
CraigJPerry wrote: post #249

Earlier quoted context omitted.

>> 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…

100% + I'd expand by saying the Fed uses its operations to control the price of money, which is interest rates, not the supply of money. The supply of money has many factors such as how many loans are created, etc. Taxes paid. etc beyond the Feds operational control.

That’s a rather pedantic interpretation. Yes the Fed doesn’t run the printing press, and it doesn’t set M1, but it controls the levers.

That’s like saying to the police officer: “I didn’t speed, I merely pressed on this pedal that’s connected to a rod that opened a valve providing more fuel to the engine that’s connected to the wheels”.

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