[kmarc]

I'm put on a banking project (as external) which already flushed down the toilet around ~$500M. Based on my experiences of the meetings and meetings about meetings, I totally understand how the incompetence lead to this clusterfuck.

My question to my boss was rather: "but _where_ do these banks get this huge amount of money from? I guess it's not from the $5 account fees." He answered that although he is in the banking business for decades, he still doesn't know.

These 100s of Millions of losses are not necessarily threatening core business. I find it amusing.

[ManskY]

All you have to do is open their annual financial statement to understand where it all comes from.

[dustingetz]

https://alhambrapartners.com/2019/04/22/eurodollar-universit...

[tolbish]

I think I found his thesis in the Epilogue:

> QE is the puppet show; bond trading is the real deal.

[howeyc]

> My question to my boss was rather: "but _where_ do these banks get this huge amount of money from? I guess it's not from the $5 account fees."

They create it.

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

[retube]

This is a very misunderstood article. The money they "create", i.e loaned or paid out, has to be funded by a deposit or similar borrowing. Making sure they can fund all their commitments is what liquidity managers and treasury departments do, it's why regulators subject banks to annual ILAAPs (Internal Liquidity Adequacy Assessment Process), it's why banks have liquidity risk and modelling teams to manage any "gap" risk banks are running in this respect.

If banks could simply create money then they'd never go bust. The only exception is the Central Bank, which can create new money that is it uses to buy assets of the same value, supporting prices and improving liquidity in the financial system.

[mason55]

This is also the root of the overnight repo market that everyone was up in arms about awhile ago.

The bank originates a new loan that they think will be profitable. Then they need to come up with the assets to offset that loan on their balance sheet (or at least a small percentage of it).

From a macro perspective you'd expect some banks to have more assets than they need and some to have less (because if I loan Joe money then eventually it will end up back in a bank somewhere, or at least a percentage of it). Each night the banks that need assets borrow from the banks that have assets and pay a small fee.

[syndacks]

https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

Banks do create money, by loaining other people's. I think you're saying the same thing?

[stu2b50]

That's what he's saying. They do create money effectively by loaning out deposits, but that's far from literally creating money.

If they have a deficit on their sheets they can't just create money for themselves like a central bank could.

[mason55]

> They do create money effectively by loaning out deposits

That's what we're taught in school but it's really backwards. They make loans that they think will be profitable and then figure out how to get the reserves needed to cover the balance sheet (either through issuing equity, drumming up more deposits, or borrowing in the overnight repo market).

https://www.investopedia.com/articles/investing/022416/why-b...

A good phrase to search for to learn more is "loans create deposits"

[stu2b50]

Sure, their assets are somewhat fungible in both time and space so long as they meet liquidity regulations.

Regardless, the point is that they can't poof money for themselves like the Fed, or another central bank, can. They can increase the economy's supply of money effectively, but that is different from having direct power over monetary supply.

[nashashmi]

Only central banks create money. The others redirect money away from insurance vaults.

Insurance requires a load of money in a vault for when disaster strikes. When it does, they curtail lending. The impact of losses is not felt immediately. It is felt much later.

[nashashmi]

Good question!

The banking industry owns more money and is scheduled to own a whole lot more money in the future. And by "more money" I mean more market share of all the money in the world.

The biggest threat to their treasures is when government prints more money. Because it limits what they are able to spend lest they cause spiraling inflation.

The banking industry is the MOST powerful industry in the world. And they don't know it or they keep the realization of that power in a tight fist.

Edit: in the context of this loss, they didn't lose anything. They just bought the debt from the creditor. They are still owed money from the debtor.