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dwinps t1_jea3685 wrote

Reply to comment by megaultraman in Subprime is back on the menu boys! by megaultraman

Two entirely different things dude and banks have LONG keep deposits that pay less than people could get elsewhere. Not a new phenomenon.

They don't "owe five percent on the $70B in deposits that are gone", you don't owe money to people who pulled their deposits so no idea what you really mean

Banks have to be profitable, check.
Banks make a profit by charging more in interest on loans than they pay to borrow the money as well as fees and other charges, check.
That difference doesn't need to be 5%.

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megaultraman OP t1_jea64j6 wrote

Yeah where'd they get that $70 billion that was withdrawn? They just had it lying around? Or they borrowed it at 5% from the Fed against their underwater treasuries?

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dwinps t1_jea7mx7 wrote

Supposedly $70B

$30B from new deposits, they also had cash and other assets

They earn interest on their $160B loan portfolio as well

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megaultraman OP t1_jeaelmd wrote

That $30 billion was just a token vote of confidence and only has a lifespan of 3 months. But maybe JPM et al will loan them $30 billion at rock bottom rates indefinitely, but I doubt it. Then it's back to the discount window for them.

So they are going to blow through all their cash and sell their loans at a loss when they can just borrow the damn money and use that to make money instead? I don't hear about anybody liquidating assets to pay back the Fed, do you?

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dwinps t1_jeaxxxq wrote

Who knows if FRB is going to make it, not me, but asserting that they need to be able to loan at 5% over what they are paying depositors is nonsensical

As for hearing about them liquidating, no they definitely don't give me a call and tell me if they do.

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Simkinn1 t1_jeac1mx wrote

The fed borrow rate is a yearly rate. It’s not an upfront rate. If they hold it for a month or two they don’t owe the fed 5%. You need to learn how interest on loans work.

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megaultraman OP t1_jeadp7y wrote

My man, in order to not pay interest they need to pay back the principal. So where are they getting this $70 billion to pay back those loans in two months?! Sell their treasuries at a loss that is a lot greater than 5%? You need to learn how balance sheets work.

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Simkinn1 t1_jeag7r8 wrote

You need to know that banks don’t only hold bonds, they also hold loans that are paid back monthly etc. seems like you read a few headlines and think you gonna be able to run a bank now. No pun intended.

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megaultraman OP t1_jeaik93 wrote

Yes and that amount, less liabilities, is their profit margin. In total last year, that amount was $5 billion. But they now have $70 billion less in assets! That is what deposits are to a bank: liabilities. Otherwise, where do they get the money to give them their deposits back?

And instead of selling those assets for a massive loss, they borrowed against them! From the Fed. At 5%. So now they have 40% less assets to pay an extra $5 billion dollars in interest payments.

The question then, and the point of this post, is WHERE ARE THEY GETTING THAT MONEY?

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Simkinn1 t1_jeb1ndo wrote

My dude you are an alabaster regard.

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alphabetasoupa9 t1_jeb5ug2 wrote

Then please explain, because it seems like a valid question to me:

How will banks survive when they're losing depositors, can't offer high enough interest rates to attract and retain depositors, and are having to take loans out against their underwater assets at the Fed funds rate to pay out the depositors who are leaving?

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Optimistbott t1_jeb36nm wrote

But some are paying higher than the rate they get on safe assets including reserves which pay 4.9% (IORB).

Even if it's like credit card debt or safe mortgages or car loans or student loans, the fed's hiking, default risk increases, and that's priced in, but regardless, banks seem to be getting into the weeds a bit.

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Optimistbott t1_jeb2fba wrote

sure, but in terms of accounting for safe assets, it feels like they need to make riskier loans or buy riskier assets to stay ahead of their rate theyre paying on their deposits.

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dwinps t1_jecab69 wrote

They were making money before, they will make less money going forward and potentially even lose money. Loan rates are already much higher, even for good customers. Their customer base really isn't subprime and I don't think regulators would be pleased if they started taking on more risky loans heading into a potential recession

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Optimistbott t1_jecu4cv wrote

You never know. They could be making safe loans to balance it out. But raising rates is supposed to slow borrowing, and the possibility of demand reduction to reduce inflation is supposed to make borrowing more risky. Maybe they already made the risky loans. A lot of long term assets depreciated due to rates tho. So maybe that’s where their heads are at. It’ll all be fine,

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