Banking failiure is very simply a failiure of regulation because of its conflict with capital. The customers of banks give banks money as loans that have a small % of risk and have a small yield, but banks are able to take on more risk than that % and have the profit imperative to do so, so they will do it if they can.
Bank failures come in waves
101–110 of 259 posts
Re: Bank failures come in waves
#102Earlier quoted context omitted.
In all circumstances. It’s a nonsense theory that is entirely based on the idea that everybody in the world will accept the value of our currency is maintained while no other country on earth gets this benefit. The sarcasm was warranted.
I'm not an expert on MMT, but I've never heard anyone say that. MMTers say that a government cannot be forced to default on debts denominated in its own currency, but that doesn't mean it can control exchange rates if it chooses to prints money to pay them. MMT encourages a broader range of thinking about what's possible, but those possibilities aren't free of consequences.
Those consequences are a soft form of default. They played some word games and turned hard defaults into soft defaults. Great?
Re: Bank failures come in waves
#103From what I understand, when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank (on behalf of the fed), and the bank needs to pay the fed interest. The bank also needs to pay the loan back by an agreed uppn time (which destroys the money). Why can we not have a similar system for deposits? A bank takes a deposit, the fed "destroys" the money, but pays interest…
Fed hates that and fights this tooth and nail. See, for example: https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-... https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-ban...
They hate it for good reason.
The narrow bank would be safer than US Treasury Bonds. In a financial crisis similar to 2008 this would amplify chaos as money drained from all other investment classes into the narrow bank at a time when the government probably needs low interest rates on their debt to solve things.
Re: Bank failures come in waves
#104Earlier quoted context omitted.
Except it's really not that easy. The fed has 250billion and there are 19 trillion of deposits. The fed has already been using a lot of that 250. And this is likely not over. Not to mention this seems like it spread overseas
The fed has a spreadsheet for which it can enter infinite amounts.
No it can't. It's pretty near the end. The world is actively moving away from dollars if you paid attention.
Re: Bank failures come in waves
#105What’s the purported bad assumption during the current wave? That interest rates would never rise?
that's what he is saying after the slides
Is there another bad assumption today?
The recent failure of Silicon Valley Bank has raised fears
of a new banking crisis. One way to look at SVB's failure
is: SVB assumed that interest rates won't rise.
Re: Bank failures come in waves
#106Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks. Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that p…
In the US there used to be the Glass-Steagall Act "effectively separating commercial banking from investment banking"; established in 1933 but it was partly repealed in 1999.
Re: Bank failures come in waves
#107Why do we even need banks? If they make money by lending money that mostly belong the people (state/feds) anyways, I guess we all would be better if banking was just a state monopol. I guess I'm just missing some points here so maybe someone can help and explain me why this is a bad idea?!
We need banks because they make it possible for the rich to gamble with the income of the poor.
If your deposits are backed by mortgages or other secured loans you and the bank expect an added return for the "risk" - which is really just making a bet that enough people can pay something extra to compensate for those who default.
This is presented as "how things are" but it actually makes no sense - not least in failing to explain why most of the population is so starved of cash, in spite of long working hours, that it has to borrow at all.
That aside - there's a feedback loop which pushes investors to riskier and riskier lending, sometimes supported by more and more extreme kinds of fraud. Eventually, but somewhat predictably, the system suffers logistic collapse. Because that's what happens to recursive systems with permissive parameters.
Re: Bank failures come in waves
#108Earlier quoted context omitted.
See, for example, Fidelity's FDIC-Insured Deposit Sweep Program. https://accountopening.fidelity.com/ftgw/aong/aongapp/fdicBa... >To provide you with the benefit of FDIC insurance eligibility, the cash balance in your account will be automatically swept into an interest-bearing FDIC-Insured Deposit Sweep position. Since FDIC insurance coverage is currently limited to $250,000 per qualified customer account per bankin…
Interesting. So is the coverage cap actually accomplishing much?
It spreads risk throughout the system. In a maximally-resilient scenario, everyone would have a small deposit at every possible bank -- then when any bank fails, it's "no big deal", and you won't panic and withdraw your money from the rest. This is similar -- any particular failure is going to be for half (or less!) of your money, instead of all of it, reducing the urgency and spreading out the risk.
Re: Bank failures come in waves
#109Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks. Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that p…
A hybrid solution could be a grade of bank accounts whose deposits are backed 1:1 by short dated government debt.
You get most of the safe custody benefits of CBDC whilst minimising the costs of restructuring the banking system. Customers could still use all the same banking apps and branches.
Such a program could even be eased in over time by steadily increasing the proportion of bank balance sheets allocated to short dated government debt.
Re: Bank failures come in waves
#110From what I understand, when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank (on behalf of the fed), and the bank needs to pay the fed interest. The bank also needs to pay the loan back by an agreed uppn time (which destroys the money). Why can we not have a similar system for deposits? A bank takes a deposit, the fed "destroys" the money, but pays interest…
>when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank (on behalf of the fed), and the bank needs to pay the fed interest. Commercial banks can not create loans out of thin air during normal operation. They either have to use depositors' money or share holders' capital. In other words, bank's liabilities (e.g. user deposits) should not exceed its assets (loan…
> Commercial banks can not create loans out of thin air during normal operation.
Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage.
At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.