America’s banks are missing hundreds of billions of dollars • Hacker News Board

Re: America’s banks are missing hundreds of billions of dollars

#41

Post by bombcar » Wed, Mar 22, 2023, 2:41 AM UTC

gen220 wrote: post #38

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

Does the government require banks to buy long-term treasuries? [1] Or did banks choose to buy long-term treasury bills, chasing the highest paper returns (i.e. discounting the risk of potential rising interest rates in the future)? It's not a rhetorical question, but a sincere one. [1]: https://en.wikipedia.org/wiki/United_States_Treasury_securit... states that Treasuries are sold in all varieties of duration, from 4…

They bought the greediest ones and ignored TIPS. They wanted profit.

Re: America’s banks are missing hundreds of billions of dollars

#42

Post by dragonwriter » Wed, Mar 22, 2023, 2:42 AM UTC

dukeofdoom wrote: post #34

jeezfrk wrote: post #15

Earlier quoted context omitted.

It's too obvious that it takes almost 4 to 6 years to get even the most obvious crooks with recorded fraud and lawbreaking on the books? Yeah. Usually longer... or never. We should be glad for what few we can get.

I still don't get the crime. Is trying to spare your wife further embarrassment by paying hush money to a porn star that tried to extort you a crime? Calling her "horse face"? What is the crime worthy of arresting a president? Payment was on the books and through a lawyer.

> I still don’t get the crime.

Well, since he hasn’t been indicted, its all secondhand speculation as to what crime he might be charged with, based on what is publicly leaked, which may not accurately or completely represent the results of the investigation.

That said, the main crime that is expected in the NY case is bookkeeping fraud for the false way the hush money payment was recorded in business records as a legal retainer, possibly with an enhancement related to that fraud being used to cover up another crime (one of the speculations in that regard is that it will be charged as covering up a federal criminal violation of campaign finance law.)

> What is the crime worthy of arresting a president?

Neither the US in general nor the State of New York have a legal principal that being a former President at the time charges are filed creates a higher standard for criminal charges, or arrest based on those charges, than exist for any other person subject to the law. There are countries that have that kind of legal lifetime privilege for certain officials or other persons, but not the US.

Re: America’s banks are missing hundreds of billions of dollars

#43

Post by tenpies » Wed, Mar 22, 2023, 2:45 AM UTC

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

> 1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment.

It's not just the banks either. In most Western countries, the pension funds are highly incentivised (usually through law) to purchase government debt in some form.

This is also part of the fuss on the ESG investment bill that Biden recently vetoed. The intent was to ensure that pension and fund managers were focused on their fiduciary obligation first and foremost, and any ESG, DIE, and SDG agendas secondly (or thirdly, or lastly).

Why do this? It's financial repression[1]. By channeling private funds into government debt or agenda-driven endeavours, it allows the government and those endeavours to borrow at much cheaper rates than they should be able to.

---

[1] https://www.investopedia.com/terms/f/financial-repression.as...

Re: America’s banks are missing hundreds of billions of dollars

#44

Post by swader999 » Wed, Mar 22, 2023, 2:45 AM UTC

uejfiweun wrote: post #32

swader999 wrote: post #21

Earlier quoted context omitted.

[flagged]

Are you implying that the banking industry and the fed are somehow colluding with the NYC DA's office? That's a hot take... although I have to admit, the DAs behavior has been suspicious, with him initially refusing to press charges against Trump on business violations, and now pressing charges on this porn star thing which is apparently a much weaker case.

I expect both are being managed at the highest levels.

Re: America’s banks are missing hundreds of billions of dollars

#45

Post by thedangler » Wed, Mar 22, 2023, 2:46 AM UTC

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

You are forgetting all the risky investments short selling and swaps.

Re: America’s banks are missing hundreds of billions of dollars

#46

Post by barsonme » Wed, Mar 22, 2023, 2:46 AM UTC

snake_plissken wrote: post #17

"The answer begins with money-market funds, low-risk investment vehicles that park money in short-term government and corporate debt. Such funds, which yield only slightly more than a bank account, saw inflows of $121bn last week as svb failed." Which banks' savings accounts are yielding anything close to money-market rates?

Ally is at 3.6%.

Re: America’s banks are missing hundreds of billions of dollars

#47

Post by simple-thoughts » Wed, Mar 22, 2023, 2:48 AM UTC

gen220 wrote: post #38

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

Does the government require banks to buy long-term treasuries? [1] Or did banks choose to buy long-term treasury bills, chasing the highest paper returns (i.e. discounting the risk of potential rising interest rates in the future)? It's not a rhetorical question, but a sincere one. [1]: https://en.wikipedia.org/wiki/United_States_Treasury_securit... states that Treasuries are sold in all varieties of duration, from 4…

Imagine you run a small regional bank. You have marketing and operational expenses you need to cover, and you also need to be attractive enough to depositors to keep them from leaving to your giant to big to fail competitors who have explicit state backing. You’re required to buy from a very limited selection of assets that have government approval, especially government debt.

Interest rates for short term debt are at 0%, at these rates you will run at a loss. Your only choice to keep your bank competitive is to find any yield at all, so you buy long duration treasuries. Yes you take interest rate risk, but your bank is able to operate for another day.

Of course the flaw in this story is that the interest rate risk should have been hedged, and it wasn’t. But viewing this as a straightforward story of “banks greedy, government good” is not reflecting the realities for regional banks.

Re: America’s banks are missing hundreds of billions of dollars

#48

Post by jkhdigital » Wed, Mar 22, 2023, 2:50 AM UTC

darth_avocado wrote: post #16

ELI5. Does this mean money is being deposited in the banks but because it’s money market, it gets parked with the fed and banks can’t use it in other assets? Is that the problem?

The article explains it pretty well, but it’s hard to understand which are the important bits without having done a lot of background research.

The main idea is that bank regulation and fiscal/monetary policy are often at odds with one another. The article mentions the SLR, which is supposed to reduce systemic risk by enforcing minimum capital requirements. Importantly, deposits are part of the denominator—they are liabilities of the bank. So flooding the banking system with cash (e.g. pandemic relief) will force banks to raise capital to maintain compliance with SLR.

The Fed could see this coming and relaxed the SLR requirements at first, but this temporary measure expired in March 2021 and within a matter of months the Fed’s reverse repo had swelled to nearly $2T. Reverse repo can be complicated to explain but basically it is the Fed’s version of an overnight money market fund—we take your cash and give you highly liquid securities and then buy them back at a slight premium tomorrow, so you earn a return for the risk of holding those securities overnight.

To reiterate, the only reason this facility exists is because banking regulations punish banks for holding excess deposits. If that was not the case, then the Fed could just pay interest directly on reserves to set a floor on interbank lending rates.

Re: America’s banks are missing hundreds of billions of dollars

#49

Post by jkhdigital » Wed, Mar 22, 2023, 2:55 AM UTC

7e wrote: post #40

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

1. Why is cash parked at the Fed not an option?

The article mentions the real core of the issue, but doesn’t make it clear that it is in fact the core: SLR (a banking regulation). SLR effectively requires banks to raise capital along with deposits. So if you flood the banking system with cash through fiscal policy, they can’t just accept all those deposits and leave them parked in their Fed reserve account. If they could, then the Fed wouldn’t need reverse repo—it could just pay interest on reserves to set a floor on interbank lending rates.

Re: America’s banks are missing hundreds of billions of dollars

#50

Post by jkhdigital » Wed, Mar 22, 2023, 3:10 AM UTC

kragen wrote: post #30

jkhdigital wrote: post #10

“The scheme was a seemingly innocuous change to the financial system’s plumbing that may, just under a decade later, be having a profoundly destabilising impact on banks.” Innocuous only to the fools at the Fed, I suppose. Outlets like ZeroHedge have been watching this for years, carefully documenting the transformation of the RRP facility from an “emergency” stabilization measure into a deposit roach motel.

but zerohedge has predicted 932 of the last 3 financial crises

There's plenty of garbage on that site but their "how-the-sausage-is-made" reporting on the financial system is second to none. I recall reading ZH articles about this back in March 2021 when the SLR relaxation ended and that analysis is still spot-on two years later.