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Gamla Mor Anna och bankernas affärsmodell

Jag har, utan framgång, letat i min dator efter en gammal god historia, så den får berättas  på nytt.

Gamla Mor Anna gick varje månad till Sparbanken, som då inte hette Swedbank, och satte in en liten slant.

Men så  en dag kom hon in och ville ta ut alla sina pengar.

Chefen på sparbankskontoret frågade henne varför hon ville ta ut sina pengar.

- Jag har hört att ni lånar ut mina pengar till andra.

The fundamental business model of banking is that the bank accepts money from depositors and then invests almost all of it.

SVB isn’t that unusual. Most depositor money is at work someplace else, so the possibility of a run is ever present.

Banking laws state that a certain amount of depositors’ money, called reserve requirements—typically around 15% of the total—must be kept for redeeming customer accounts. The remaining 85% gets loaned out, often in long-term illiquid loans. 

If customers want to withdraw more than the bank has on reserves in a short time period, a death spiral may ensue.

Banking relies on probability theory. If you have a large number of account holders and each of them makes independent decisions, then it’s unlikely you’ll ever have a problem. But statistical independence rarely exists in the real world.

 I can speak candidly about every bank being at risk mainly because I’m a relative nobody. If Jamie Dimon or Jerome Powell said the same at the wrong moment, it could spark a financial crisis overnight.

Nathan Myhrvold WSJ 4 March 2023 


The way a bank works is that it borrows short to lend long

Matt Levine Bloomberg 13 mars 2023 

An inverted yield curve makes life harder for all banks

John Authers Bloomberg 15 mars 2023

About $620 billion at yearend 2022

Remarks by FDIC Chairman Martin Gruenberg 

So much for the good news. As I will discuss next, risks facing banks remain and new risks have arisen.

The current interest rate environment has had dramatic effects on the profitability and risk profile of banks’ funding and investment strategies. 

First, as a result of the higher interest rates, longer term maturity assets acquired by banks when interest rates were lower are now worth less than their face values. 

The result is that most banks have some amount of unrealized losses on securities. The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at yearend 2022. 

Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry.

FDIC 6 March 2023


US banks sitting on unrealized losses of $620 billion

CNN 12 March 2023


Too big to fail is in the process of being extended to a whole new set of banks The Volcker rule

Remake the financial system to eliminate the risk of bank runs. Checking accounts would be held with “narrow banks” that look very like a government money-market fund,

James Mackintosh WSJ 16 March 2023 

Englund: Too big to fail is in the process of being extended to a whole new set of banks (englundmacro.blogspot.com)

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