Earlier quoted context omitted.
You can trust them because if they issue a loan they shouldn't be able to sell it.
LOL if a bank can't sell loans they'd have liquidity issues before a bank run could even happen.
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First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
231–237 of 237 posts
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#232Earlier quoted context omitted.
Because it's way easier to buy a lot of unknown risk than create it by lending.
Not sure that is the case. If you can't buy good loans I really doubt you can issue good loans.
To buy good loan you have to check whole supply chain. To issue a good loan you need to check only the borrower and you have every incentive to do so if you can't offload the loan to someone else after it's created.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#233Earlier quoted context omitted.
Every asset has some risk. If they were only allowed to own dollars and loans they created themselves there would be no problem.
That’s also totally wrong. What do you think the financial difference between originating a loan and buying a bond is? You pay out a principal sum, then (as long as the borrower is creditworthy) you get back the principal and interest. Unless you only make floating rate loans (which is extremely rare outside of revolving lines like credit cards) then you have exactly the same duration risk problems and you’re actuall…
To issue a loan you need to individually check the borrower, and that's it. With bonds you put your trust in the whole system that banks apparently (as SBV debacle shows) don't understand (bacause they can't or because they have incentive not to understand).
Also, floating rate loans and mortgages are super common. Maybe not in US.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#234Earlier quoted context omitted.
I can't imagine that going well. "No we're taking your $50k life savings back so we can give it all to a client that had $5mil and deserves your $50k life savings more than you do"
Check out the Madoff documentary on Netflix, there are interviews with people who had exactly that happen as they clawed back funds to try to make everyone whole.
Madoff was an actual pyramid scheme; once criminal fraud enters the picture it’s a different story.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#235Earlier quoted context omitted.
Not sure that is the case. If you can't buy good loans I really doubt you can issue good loans.
To buy good loan you have to check whole supply chain. To issue a good loan you need to check only the borrower and you have every incentive to do so if you can't offload the loan to someone else after it's created.
Uh, no, lol, unless there is fraud expected ... it's not quite simple to "check the borrower" and it takes a decent amount of legwork.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#236Earlier quoted context omitted.
To buy good loan you have to check whole supply chain. To issue a good loan you need to check only the borrower and you have every incentive to do so if you can't offload the loan to someone else after it's created.
Uh, no, lol, unless there is fraud expected ... it's not quite simple to "check the borrower" and it takes a decent amount of legwork.
Exactly. And it's a work that bank has to put in if it can't sell the loan. But if the bank can sell the loan it becomes "check the borrower or bullshit the buyer" and the banks decided latter is less work. And that's why 2008 happened.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#237Earlier quoted context omitted.
You can trust them because if they issue a loan they shouldn't be able to sell it.
LOL if a bank can't sell loans they'd have liquidity issues before a bank run could even happen.
Maybe that's the correct moment to have the liquidity issues not down the line as it is now?
You know, fail early.