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If I understand Mike right, he said that when more reserves are dumped onto commercial banks, they sometimes have to obtain more capital. That seems daft to me. If a bank acquires more deposits and lends out more (particularly to questionable NINJA type borrowers) then it's reasonable to require to bank to obtain more capital to cover the increased risk it runs.
But if a bank acquires $X more deposits and the "loan" it makes corresponding to those is to the Fed, there's no increased risk, surely? I mean the Fed isn't going to go bust like some NINJA mortgagors do.
The Supplemental Leverage Ratio Requirement doesn't care if assets, including bank reserves, are risk-free.
At first that seemed daft to me too but now I like that banks can't go on a lending spree just because government has stimulated the economy - that is, WITHOUT raising more capital.
Of course, the proper solution is 100% private banks with 100% voluntary depositors and then their capital or lack thereof would not be a concern to the general economy - anymore than any other gamblers.
Since the proper purpose of a common stock company is to CONSOLIDATE capital for economies of scale, etc. then since stock buybacks and even dividends contradict that purpose by DISSIPATING capital they are highly suspect.
Note also the enormous success of Amazon that has never paid a dividend and has not bought back stock for the last 33 consecutive quarters.
But then the purpose of Amazon is to provide goods and services, not to loot the population in the guise of providing a service as the banks do.
6 comments:
Thanks, Mike.
One suggestion is that you change "bank accounts" to "reserve accounts of banks" since the former is a bit ambiguous.
Stream of consciousness is effortless.
If I understand Mike right, he said that when more reserves are dumped onto commercial banks, they sometimes have to obtain more capital. That seems daft to me. If a bank acquires more deposits and lends out more (particularly to questionable NINJA type borrowers) then it's reasonable to require to bank to obtain more capital to cover the increased risk it runs.
But if a bank acquires $X more deposits and the "loan" it makes corresponding to those is to the Fed, there's no increased risk, surely? I mean the Fed isn't going to go bust like some NINJA mortgagors do.
The Supplemental Leverage Ratio Requirement doesn't care if assets, including bank reserves, are risk-free.
At first that seemed daft to me too but now I like that banks can't go on a lending spree just because government has stimulated the economy - that is, WITHOUT raising more capital.
Of course, the proper solution is 100% private banks with 100% voluntary depositors and then their capital or lack thereof would not be a concern to the general economy - anymore than any other gamblers.
They just actually reduced their Equity/Capital by $100B under Fed supervision...
https://www.foxbusiness.com/markets/banks-buy-back-stock-federal-reserve
They are not raising capital....
Since the proper purpose of a common stock company is to CONSOLIDATE capital for economies of scale, etc. then since stock buybacks and even dividends contradict that purpose by DISSIPATING capital they are highly suspect.
Note also the enormous success of Amazon that has never paid a dividend and has not bought back stock for the last 33 consecutive quarters.
But then the purpose of Amazon is to provide goods and services, not to loot the population in the guise of providing a service as the banks do.
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