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Doesn't this system also require a central registry of outstanding debt per individual? Otherwise if the bank ratio calculations say they're comfortable lending
by addaon 5y ago
Doesn't this system also require a central registry of outstanding debt per individual? Otherwise if the bank ratio calculations say they're comfortable lending you $1000, what prevents you from going to 100 banks and getting 100x that amount (which, presumedly, would be beyond each individual bank's risk tolerance)?
- chii 5y agoThis is exactly what happened with https://en.wikipedia.org/wiki/Archegos_Capital_Management#March_2021_losses https://en.wikipedia.org/wiki/Archegos_Capital_Management#Ma... - they had what basically amounts to loans to several different banks (with each bank largely unaware of his other leveraged holdings at other banks). When the stock price dropped and started to make margin calls on the loans, some of the banks had to take a loss as there wasn't enough liquidity to sell into. banks don't like to be in this sort of situation - in this particular case, the banks just didn't do enough due diligence presumably.