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America’s banks are missing hundreds of billions of dollars

economist.com

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

#81

Post by lordnacho »

User23 wrote: post #55
simple-thoughts wrote: post #47

Earlier quoted context omitted.

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 a…

> Of course the flaw in this story is that the interest rate risk should have been hedged, and it wasn’t. How does the banking sector in aggregate hedge its interest rate risk exactly? They have to find a net counterparty outside the sector who wants exposure to interest rate risk. Who exactly would that be at sufficient scale to protect trillions in deposits?

Speculators aka hedge funds.

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

#82

Post by watwut »

simple-thoughts wrote: post #47
gen220 wrote: post #38

Earlier quoted context omitted.

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 a…

But small regional banks had not done that in general.

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

#83

Post by kgwgk »

simple-thoughts wrote: post #47
gen220 wrote: post #38

Earlier quoted context omitted.

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 a…

> 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 […] Of course the flaw in this story is that the interest rate risk should have been hedged, and it wasn’t.

If you buy long-term Treasuries for the high yield and you hedge the interest risk rate… what you get is the yield of the short-term Treasuries. Why buy them in the first place then? (There is no credit risk in this case - if you neutralize the interest rate risk there is nothing left.)

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

#84

Post by quickthrower2 »

User23 wrote: post #55
simple-thoughts wrote: post #47

Earlier quoted context omitted.

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 a…

> Of course the flaw in this story is that the interest rate risk should have been hedged, and it wasn’t. How does the banking sector in aggregate hedge its interest rate risk exactly? They have to find a net counterparty outside the sector who wants exposure to interest rate risk. Who exactly would that be at sufficient scale to protect trillions in deposits?

Damn is no one gonna pay for the free lunch?

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

#85

Post by mort96 »

vxNsr wrote: post #65
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…

This is all gonna get brushed under the rug by most journalists because of the political party that supported most of this mess.

Huh? This seems like very much a bipartisan thing.

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

#86

Post by christophilus »

vxNsr wrote: post #65
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…

This is all gonna get brushed under the rug by most journalists because of the political party that supported most of this mess.

Both parties supported reckless Fed interventions in both 2008/9 and in 2019-23. Remember Trump haranguing Powell? Trump was trying to pressure Powell into keeping the economy running hot.

We need a new party. Preferably, one that has some notion of basic economics.

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

#87

Post by somenameforme »

nugget wrote: post #61
harry8 wrote: post #56

Earlier quoted context omitted.

> Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday. Big call. Huge. Got some data or similar to back it? Edit: If there's clear picking of winners, or even plausibly so it's gonna look pretty bad. [1] [1] https://www.theguardian.com/business/2021/jan/01/janet-yelle...

Watch the exchange between Sen Lankford and Sec Yellen yourself: https://www.youtube.com/watch?v=Bcvl104tyRY Yellen says unsecured depositors at TBTF banks will always be bailed out, but those at smaller banks are on their own. It's one of the most incredible moments I've witnessed. I'm not sure if there's some hidden agenda being pursued, or if Yellen is just so far removed from the real world that she doesn't under…

I never understand things like this. She looks like a deer caught in the headlights when he asks her the most predictable and basic question about her decisions. How can you be in such a position, make such decisions, and be unable to offer a compelling answer to the most basic questions?

Even if it some sort of a hidden agenda and [further] centralizing banking is just seen as a convenient stepping stone towards CBDCs or whatever, you'd come up with some passable explanation ahead of time. I mean it's not like the Senator there pulled out some gotcha she couldn't have expected.

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

#89

Post by mo_42 »

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…

> 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly.

Printing money doesn’t cause inflation necessarily. Your thinking is based on Monetarism, which has been debunked a while ago.

In essence, it’s not about the amount of money that is created. It's about the amount of goods we try to consume in relation to the amount of goods produced.

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

#90

Post by albertopv »

refurb wrote: post #63
albertopv wrote: post #60

Earlier quoted context omitted.

2. is wrong, we had years of central banks money printing without inflation, recovery from Covid19 and the war are the reasons of this high inflation. Actually Fed real error has been raising rates to counter an inflation not caused by monetary policies. SVB put all their investments in one bucket and it has been a very poor decision, really a rookie one

Inflation started going up before Covid and the war in Ukraine . Saying “the central bank printed money for years without inflation” as proof it’s not the cause is like saying a gas leak didnt cause the explosion because it’s been leaking for years.

Maybe you are misinformed:

https://en.wikipedia.org/wiki/2021%E2%80%932023_inflation_su...

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