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(LA Times)   Proposed new rules would require banks to hold capital equal to 6% of their assets. Of course, the banks have a problem with this   (latimes.com) divider line 58
    More: Obvious, U.S. Bancorp, bank holding companies, U.S., financial ratio, strong base, leverage ratios, bonus payment, Federal Deposit Insurance Corporation  
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3657 clicks; posted to Main » on 10 Jul 2013 at 9:44 AM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-07-10 09:46:10 AM  
fonzibrain.files.wordpress.com
 
2013-07-10 09:47:37 AM  
It's a miracle the finance system even works when banks only need to have on hand 1 dollar to every ten floating out there on obligation.
 
2013-07-10 09:49:16 AM  
Money isn't real.
 
2013-07-10 09:49:20 AM  
If they write down the bad mortgage debt to FMV on their balance sheets they would have negative capital. Call me when that takes place. Until then, this six percent hokum is meaningless
 
2013-07-10 09:50:56 AM  
It would be nice if they actually had to pay us interest too.  "No see, we still charge you 5% or 8% or 10% or more, maybe 18% on a credit card, but for your savings we'll give you .4%.  We might bump it up to 1% on a 10 year CD.  Doesn't that sound awesome?"
 
2013-07-10 09:53:00 AM  
 
2013-07-10 09:53:27 AM  
Yeah? Well fark them.

Jump, you farkers.
 
2013-07-10 09:54:23 AM  
What's crazy is that when the crash hit 5 years ago, there was an article (an op-ed?) written by Michael Milken (of junk-bond infamy) where he said: "When I was on Wall Street, we rarely had more than 1:1 leverage, and the highest I recall in my career was 4:1. The idea of leveraging 30:1 or more, as many financial institutions did recently, is not a business."

When the guy responsible for a market meltdown based largely on not being able to cover losses tells you your leverage is off, it might be a good idea to listen.

// and banks should be liquid enough to be able to cover disaster scenarios like runs or crashes
// that's sort of why we trust them to hold our money in the first place (that and a nonzero interest rate)
 
2013-07-10 09:55:02 AM  
Setting aside the obvious evil of the banks, I must say those new TD ads are hysterical.
"We can't have people stealing our pens!"
And
"The bank is closing.  Please come back during business hours."  "Uh, I run a business during business hours."
 
2013-07-10 09:55:31 AM  

Jereco1: Imagine the horror of being a canadian bank and keeping more than 10%...

http://www.cba.ca/en/media-room/50-backgrounders-on-banking-issues/6 67 -global-banking-regulations-and-banks-in-canada


A lot of smaller banks in the US are in the 12-14% range.
 
2013-07-10 09:56:01 AM  

Jereco1: Imagine the horror of being a canadian bank and keeping more than 10%...

http://www.cba.ca/en/media-room/50-backgrounders-on-banking-issues/6 67 -global-banking-regulations-and-banks-in-canada


Of course, the fact that Canadian banks thrived through the banking crisis is one of the best arguments for this change.
 
2013-07-10 09:56:15 AM  

IdBeCrazyIf: It's a miracle the finance system even works when banks only need to have on hand 1 dollar to every ten floating out there on obligation.


When I found that out it blew my mind. Still does.

It's all a house of cards built on everyone agreeing to the same delusion.
 
2013-07-10 09:57:07 AM  

lewismarktwo: Money isn't real.


You're so right! Thats why you should send all your money to me. I'll thank you for it, and isn't my thanks more real than money?
 
2013-07-10 09:57:38 AM  
Banks get around the held-capital rules very easily.  Let's say it was even 10%.  Well bank A gets a CD from bank B by depositing the 10% with B.  Now B has 20% capital (hypothetical math), and can loan out 10% more.  It take's it's 10%, gets a CD from bank A for the 10%.  Bank A now has 20%, rinse, repeat, until they have really loaned out well in excess of their actual equity, but it looks like they are still good.

In reality, you have dozens of banks involved in the round-robin, and the only solvent ones in the mess are the executives who are in on the conspiracy.
 
2013-07-10 09:58:04 AM  
HAHAHAHAHA

Youre serious?

HAHAHAHAHAHAHAHA

/At this point you might as well make it a million percent.
//What do you think this is Canada?
 
2013-07-10 10:00:30 AM  

IdBeCrazyIf: It's a miracle the finance system even works when banks only need to have on hand 1 dollar to every ten floating out there on obligation.


They don't teach economics in high school where you grew up? Hint: loaning out the money increases circulation by a multiplier, which is why the rate is controllled by the Fed.
 
2013-07-10 10:01:05 AM  

ManRay: It's all a house of cards built on everyone agreeing to the same delusion.


I mean in principle that's how currency works, there is no value to the piece of paper other than what you ascribe to it. But the value is there because there is a trust relationship as well.

How can you really trust an institution that effectively gambles with capital?

It's all one global disaster away from collapse really.
 
2013-07-10 10:01:28 AM  

ManRay: IdBeCrazyIf: It's a miracle the finance system even works when banks only need to have on hand 1 dollar to every ten floating out there on obligation.

When I found that out it blew my mind. Still does.

It's all a house of cards built on everyone agreeing to the same delusion.


The house of cards falls when the music stops and everyone realizes there is less than 1 chair for every 10 they said they had.

Ahhh, nothing like a good 'ol fashioned bank run.

/Last one in (the bank) is a rotten egg!
 
2013-07-10 10:01:54 AM  

UsikFark: They don't teach economics in high school where you grew up? Hint: loaning out the money increases circulation by a multiplier, which is why the rate is controllled by the Fed.


As stated up thread, when the dude who tanked the economy from over leveraging says that we are over leveraged perhaps we should listen.
 
2013-07-10 10:03:17 AM  
I don't normally roll my Ls but mobile keyboard and all.
 
2013-07-10 10:04:56 AM  

Dr Dreidel: What's crazy is that when the crash hit 5 years ago, there was an article (an op-ed?) written by Michael Milken (of junk-bond infamy) where he said: "When I was on Wall Street, we rarely had more than 1:1 leverage, and the highest I recall in my career was 4:1. The idea of leveraging 30:1 or more, as many financial institutions did recently, is not a business."

When the guy responsible for a market meltdown based largely on not being able to cover losses tells you your leverage is off, it might be a good idea to listen.

// and banks should be liquid enough to be able to cover disaster scenarios like runs or crashes
// that's sort of why we trust them to hold our money in the first place (that and a nonzero interest rate)


I agree on the leverage issue, but to be fair, bank runs and serious market crashes are actually hard to defend against.  It's kind of like requiring every residential building to withstand a 9.0 earthquake...sure, lives will be saved, but a LOT less buildings will be built.

That said, if they want to participate in the FDIC program, the banks should farking well agree to any and all rules we impose on them.

Don't like it?  go out on your own, big boy.
 
2013-07-10 10:06:42 AM  

lewismarktwo: Money isn't real.


bigbaddie.com
 
2013-07-10 10:14:25 AM  
Um, I think they mean liabilities, not assets.
 
2013-07-10 10:16:24 AM  

PunGent: I agree on the leverage issue, but to be fair, bank runs and serious market crashes are actually hard to defend against. It's kind of like requiring every residential building to withstand a 9.0 earthquake...sure, lives will be saved, but a LOT less buildings will be built.


Sure, but new buildings must be able to survive earthquakes of a given magnitude (I think 6 is the usual standard, but it might be higher or lower based on locale). To get flood insurance, you have to raise your house out of the 100-year floodplain (if it's not already). To get homeowner's insurance, your house has to be inspected and up to code.

We establish protections for the foreseeable circumstances, not every possible bad outcome. A bank should be able to protect itself against moderate runs or minor crashes without needing Uncle Sam's help.

// and by the way, the "100-year floodplain" means "the height of a flood with a 1% annual chance of happening"
// which, over a 30-year mortgage, has something like a 25% chance of happening
// how often do smaller bank runs or crashes happen? I'm only 31 and I can think of 2 minor crashes in my life (and the one big one)
 
2013-07-10 10:21:19 AM  

IdBeCrazyIf: UsikFark: They don't teach economics in high school where you grew up? Hint: loaning out the money increases circulation by a multiplier, which is why the rate is controllled by the Fed.

As stated up thread, when the dude who tanked the economy from over leveraging says that we are over leveraged perhaps we should listen.


The reserve rate is not levering anything. The reserve rate is something else, and at ten percent I assume he means reserve rate. Leverage is getting a loan for an asset with a higher return rate- this is not the same as a bank loaning *out* 90%.
 
2013-07-10 10:24:00 AM  
With tighter loans, housing prices will fall which will negatively impact banks who are sitting on so much foreclosed inventory. Of course they don't want higher capital requirements - they still haven't taken their lumps for what they did to the  housing market economy.
 
2013-07-10 10:26:46 AM  

Private_Citizen: ManRay: IdBeCrazyIf: It's a miracle the finance system even works when banks only need to have on hand 1 dollar to every ten floating out there on obligation.

When I found that out it blew my mind. Still does.

It's all a house of cards built on everyone agreeing to the same delusion.

The house of cards falls when the music stops and everyone realizes there is less than 1 chair for every 10 they said they had.

Ahhh, nothing like a good 'ol fashioned bank run.

/Last one in (the bank) is a rotten egg!


It's OK the FDIC insurance has you covered. They can go tits up and the government bails them out.

Horray socialism.
 
2013-07-10 10:33:09 AM  

Carn: It would be nice if they actually had to pay us interest too.  "No see, we still charge you 5% or 8% or 10% or more, maybe 18% on a credit card, but for your savings we'll give you .4% four times the national average!.  We might bump it up to 1% on a 10 year CD.  Doesn't that sound awesome?"


FTFY
 
2013-07-10 10:33:20 AM  

SDRR: Private_Citizen: ManRay: IdBeCrazyIf: It's a miracle the finance system even works when banks only need to have on hand 1 dollar to every ten floating out there on obligation.

When I found that out it blew my mind. Still does.

It's all a house of cards built on everyone agreeing to the same delusion.

The house of cards falls when the music stops and everyone realizes there is less than 1 chair for every 10 they said they had.

Ahhh, nothing like a good 'ol fashioned bank run.

/Last one in (the bank) is a rotten egg!

It's OK the FDIC insurance has you covered. They can go tits up and the government bails them out.

Horray socialism.


Hey now, you watch your dirty mouth! That's only ok when it benefits Wallstreet.

It's Never ok when it helps Mainstreet.
 
2013-07-10 10:38:53 AM  

SDRR: It's OK the FDIC insurance has you covered. They can go tits up and the government bails them out.

Horray socialism.


Insurance = socialism now? That's a pretty broad definition.

And does anyone know how much the FDIC is required to keep liquid in order to respond to bank failings?
 
2013-07-10 10:45:05 AM  
farm4.staticflickr.com
 
2013-07-10 10:46:21 AM  
You're thinking of this place all wrong, as if they had the money back in the safe. The money's not here. Your money's in Joe's house, that's right next to yours. And in the Kennedy house and Mrs. Macklin's house and a hundred others. Why, you're lending them the money to build.
 
2013-07-10 10:48:53 AM  
God forbid we should actually hold businesses accountable,
as they do to us...

If you want friggin' "free speech" you have to pay for it.
Welcome to the wonderful world of consequences and responsibility.
 
2013-07-10 10:55:51 AM  

ManRay: SDRR: It's OK the FDIC insurance has you covered. They can go tits up and the government bails them out.

Horray socialism.

Insurance = socialism now? That's a pretty broad definition.

And does anyone know how much the FDIC is required to keep liquid in order to respond to bank failings?


I don't know that number, but I do know that the FDIC has a line of credit with Treasury that they can draw on when needed. It was $100b before the financial crisis, and then Congress upped it to $500b during the crisis.
 
2013-07-10 11:23:07 AM  
Funny how bankers turned the world upside down, but really, we all know it was all because of ... food stamps, no?
 
2013-07-10 11:27:15 AM  

ManRay: SDRR: It's OK the FDIC insurance has you covered. They can go tits up and the government bails them out.

Horray socialism.

Insurance = socialism now? That's a pretty broad definition.

And does anyone know how much the FDIC is required to keep liquid in order to respond to bank failings?


It's brought up in every unemployment thread, so why not here?
 
2013-07-10 11:38:00 AM  
I remember getting 8% interest at my Credit Union. Getting old.
 
2013-07-10 11:48:45 AM  

Gotfire: [fonzibrain.files.wordpress.com image 500x375]


I stopped here. And I said, Genius.
 
2013-07-10 11:49:12 AM  

ManRay: IdBeCrazyIf: It's a miracle the finance system even works when banks only need to have on hand 1 dollar to every ten floating out there on obligation.

When I found that out it blew my mind. Still does.

It's all a house of cards built on everyone agreeing to the same delusion.



That's all market value is: a shared delusion.
Look at gold. It's a useful metal for electronics and such. Beyond that, it's just shiny, easy to work, and some peop[le think it's pretty.
So how did it get to be the basis for national wealth? People agreed that it should be. Gold's "value" was such a widespread shared fantasy that it was never even questioned for centuries.
 
2013-07-10 12:01:35 PM  
I don't see why the larger banks have to hold any capital reserves at all. If they get in trouble (again), they will simply borrow enough money from the Fed at 0.01% interest, to keep going. Having to hold reserves when you are guaranteed to get bailed out is communism.  There will never be another large bank failure. They simply will not be allowed to fail.

Didn't anybody learn anything from 2008 ?
 
2013-07-10 12:32:50 PM  

Arkanaut: Carn: It would be nice if they actually had to pay us interest too.  "No see, we still charge you 5% or 8% or 10% or more, maybe 18% on a credit card, but for your savings we'll give you .4% four times the national average!.  We might bump it up to 1% on a 10 year CD.  Doesn't that sound awesome?"

FTFY


If your money is in an account yielding an interest rate less than 1%, you need to reevaluate where you keep your money.

Unless you're a mattress stuffer who fears a pending total economic meltdown, any index or money market fund is a better investment.
 
2013-07-10 12:35:15 PM  
If they don't like 6% then make it 12%.

See if they're smart enough to shut up or risk 18%.
 
2013-07-10 12:48:11 PM  
How it should go down...

Government regulators: "After you big financial institutions nearly tanked the world economy, cost taxpayers tons of money and helped push unemployment way up we need you to hold capital equal to 6% of your assets."

Banking lobbysts: "No, you can't do that! It's not fair!" /ragefist pounded on desk

Government regulators: "You know what? Let's make that 8%."


How it most likely will actually go down:

Government regulators: "After you big financial institutions nearly tanked the world economy, cost taxpayers tons of money and helped push unemployment way up we need you to hold capital equal to 6% of your assets."

Banking lobbysts: "No, you can't do that! It's not fair!" /ragefist pounded on desk

Government regulators: "We need 6%."

Congressmen: "Yeah... let's go ahead and make that 3%, we've got donors and buddies who don't want anything higher. And you regulators can STFU now."
 
2013-07-10 12:48:58 PM  

Carn: It would be nice if they actually had to pay us interest too.  "No see, we still charge you 5% or 8% or 10% or more, maybe 18% on a credit card, but for your savings we'll give you .4%.  We might bump it up to 1% on a 10 year CD.  Doesn't that sound awesome?"


If you don't like what you get for having a savings account, keep your money yourself.
 
2013-07-10 01:01:35 PM  

Pangea: Arkanaut: Carn: It would be nice if they actually had to pay us interest too.  "No see, we still charge you 5% or 8% or 10% or more, maybe 18% on a credit card, but for your savings we'll give you .4% four times the national average!.  We might bump it up to 1% on a 10 year CD.  Doesn't that sound awesome?"

FTFY

If your money is in an account yielding an interest rate less than 1%, you need to reevaluate where you keep your money.

Unless you're a mattress stuffer who fears a pending total economic meltdown, any index or money market fund is a better investment.


It's not just risk -- there's a liquidity aspect as well.  There are a lot of people out there who don't have that much savings in the first place, and for whom "rainy days" come more often than for maybe you and me.
 
2013-07-10 01:02:13 PM  

Pangea: Arkanaut: Carn: It would be nice if they actually had to pay us interest too.  "No see, we still charge you 5% or 8% or 10% or more, maybe 18% on a credit card, but for your savings we'll give you .4% four times the national average!.  We might bump it up to 1% on a 10 year CD.  Doesn't that sound awesome?"

FTFY

If your money is in an account yielding an interest rate less than 1%, you need to reevaluate where you keep your money.

Unless you're a mattress stuffer who fears a pending total economic meltdown, any index or money market fund is a better investment.


Sure, but everyone needs emergency funds in savings to cover potential immediate expenses such as car repair, deductibles for any insurance, medical expenses and so forth, and the most liquid account is savings.  However, if you know of any index funds which allow you to withdraw funds with no penalties on an immediate basis I'd be very interested.  I'm actually looking to open a Vanguard account in a month or two when I get my money back from my refinance (bank owes me escrow).
 
2013-07-10 01:04:27 PM  

Itstoearly: Carn: It would be nice if they actually had to pay us interest too.  "No see, we still charge you 5% or 8% or 10% or more, maybe 18% on a credit card, but for your savings we'll give you .4%.  We might bump it up to 1% on a 10 year CD.  Doesn't that sound awesome?"

If you don't like what you get for having a savings account, keep your money yourself.


It's one of those "all I can do is biatch about it" scenarios.  I like having my money in the bank and the security that comes from not having it all stuffed under the mattress, being able to pay my bills and so forth, but I dislike the fact that the banks gives us basically nothing for money that they turn around and invest and make billions from collectively.
 
2013-07-10 01:13:17 PM  
Still won't resolve a big problem where national debt is still considered viable capital. So a bank could go buy Greek debt until it reaches its 6% then business as usual. And when the next house of cards fails thanks to the Frank-Dodd bill the bailouts will be codified into law

Why should they act in anyone's interest when they can act as recklessly as they please but and get bailed out by the government but be allowed to keep any successful risky bets

And doesn't this concept fly in the face of Quantitative Easing #89w37423?
 
2013-07-10 01:20:20 PM  

Carn: "No see, we still charge you 5% or 8% or 10% or more, maybe 18% on a credit card, but for your savings we'll give you .4%


Whoa, where are you getting paid 0.4%?  The best I can get out of my credit union without opening a CD is 0.15%, and the chain banks usually want you to pay for the privilege of leaving your money with them.
 
2013-07-10 01:25:27 PM  

UsikFark: IdBeCrazyIf: It's a miracle the finance system even works when banks only need to have on hand 1 dollar to every ten floating out there on obligation.

They don't teach economics in high school where you grew up? Hint: loaning out the money increases circulation by a multiplier, which is why the rate is controllled by the Fed.


Yeah, they taught that, using 20% as an example of a sane reserve ratio.  They also covered the history of bank runs, collapses, and panics.
 
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