9 ms·

I've worked at a bank. A significant proportion of the the workforce had no idea how it works. I'd say <10% of the senior executives have the slightest clue. B

by dcl 4y ago

I've worked at a bank. A significant proportion of the the workforce had no idea how it works. I'd say <10% of the senior executives have the slightest clue. But it's not 'as they wish' as you say, depending on where they operate, they are typically constrained by capital and liquidity ratios set by their regulator.

User23 4y ago
Isn’t bank capitalization largely bank stocks, which are valued largely on the number and performance of originated or otherwise held loans? I feel like I have a pretty solid grasp on the operational mechanics of money creation, but I don’t for capitalization. The whole thing seems a little dippy though. For example isn’t the Fed “capitalized” by its largest borrower, the Treasury? All that being said I doubt loan officers check their capitalization ratio before originating a profitable loan to a creditworthy borrower. I imagine another department checks the ratios from time to time and sells or resells loans for cash or stocks to increase the capitalization ratio as needed. I’d love to hear from someone who actually handles this.
- lottin 4y ago
  OP was talking about financial capital. Financial capital is the difference between assets and liabilities. If the company was liquidated right now, what would remain is the financial capital, so in a manner of speaking it's the net worth of a corporation. Regulators require banks to keep a certain amount of financial capital in accordance with the risks that they take and various other parameters in order to make sure that they are able to absorb big losses without going bankrupt.
  - User23 4y ago
    Yeah, I'm aware of the basic investopedia definition. What I don't understand is what are those assets exactly? What kind of assets can be counted as capital? Vault cash? Reserves held at the Fed? And is a performing loan capital? It's an asset that can be sold to other banks. If that's the case, then can't a bank increase its capital by originating good loans? If that's so, then capital requirements don't particularly appear to operationally constraint loan origination and deposit creation.
hutzlibu 4y ago
I think something is very wrong, when the base of the economy - money - is so complicated, that only few people understand it. This just gives room for fraud and bad conspiracy theories (the jews control all the money! .. so I heard couple of times) But a better alternative? Well, cryptocoins are not exactly simple either(despite their other flaws). And most other concepts I have heard of, are hellish in the details, too.
- BurningFrog 4y ago
  Bitcoin is pretty simple to understand. In part, I think that is why so many criticize it.
  - andirk 4y ago
    I am a big fan of BTC and crypto and I see plenty of valid criticism. But most of it sounds like people wishing they got in at the beginning when it was offered to them. So now they must wish for its demise to counter.
- rglover 4y ago
  Bitcoin is the ideal alternative. It was designed to be exactly that. Crypto, on the other hand, is to Bitcoin what Herbalife is to healthy food. In terms of details, Bitcoin is straightforward. It can be boiled down to: instead of obscuring the system we use globally for exchanging value—leaving it prone to manipulation and corruption—Bitcoin makes this system trustless (meaning you don't have to take someone's word for it), transparent, and accessible to anyone, without limits, allowing them to transact globally. The reason most ignore Bitcoin is because the very people that run the existing system have the ability to push propaganda against it. The two favorites being: 1. It's bad for the climate (ignoring the existing system's required infrastructure which makes Bitcoin look like a hippie commune). 2. It doesn't have enough transaction capacity (ignoring or being oblivious to the Lightning Network/off-chain settlement). There is no technical reason that Bitcoin can't work; it's purely a problem of perception and operant conditioning.
  - hutzlibu 4y ago
andrepd 4y ago
> But it's not 'as they wish' as you say, depending on where they operate, they are typically constrained by capital and liquidity ratios set by their regulator. Okay! Then why don't families and individuals have an equivalent mechanism? Set capital and liquidity ratios by law. E.g.: if you have 10k$ on hand, you can create 100k$ of liabilities. If you have 10k$ on hand and 50$k in medium-risk investments, you can create 300k$ of liabilities, and buy a house that way. Something along those lines. Of course, since ordinary people can't do that, they need to go to middlemen: the very banks who can do that x) Doesn't strike me as very fair.
- deeg 4y ago
  Technically speaking, you can do this. For example you could create a private VC firm and convince people to give you their money. You could then "loan" that money to a start-up. That start-up would then pay its employees with the money who could re-invest it with you. You take that money and "loan" it to another start-up. Voila, you've created capital. As soon as you start taking other people's money you are subject to a ton of regulations for limiting fraud. In the above example if you took the funds and bought a house you'd be potentially guilty of fraud.
  - andrepd 4y ago
    That has 0 to do with what I said, please re-read.

by dcl 4y ago

User23 4y ago

Isn’t bank capitalization largely bank stocks, which are valued largely on the number and performance of originated or otherwise held loans? I feel like I have a pretty solid grasp on the operational mechanics of money creation, but I don’t for capitalization. The whole thing seems a little dippy though. For example isn’t the Fed “capitalized” by its largest borrower, the Treasury? All that being said I doubt loan officers check their capitalization ratio before originating a profitable loan to a creditworthy borrower. I imagine another department checks the ratios from time to time and sells or resells loans for cash or stocks to increase the capitalization ratio as needed. I’d love to hear from someone who actually handles this.

lottin 4y ago
OP was talking about financial capital. Financial capital is the difference between assets and liabilities. If the company was liquidated right now, what would remain is the financial capital, so in a manner of speaking it's the net worth of a corporation. Regulators require banks to keep a certain amount of financial capital in accordance with the risks that they take and various other parameters in order to make sure that they are able to absorb big losses without going bankrupt.
- User23 4y ago
  Yeah, I'm aware of the basic investopedia definition. What I don't understand is what are those assets exactly? What kind of assets can be counted as capital? Vault cash? Reserves held at the Fed? And is a performing loan capital? It's an asset that can be sold to other banks. If that's the case, then can't a bank increase its capital by originating good loans? If that's so, then capital requirements don't particularly appear to operationally constraint loan origination and deposit creation.

hutzlibu 4y ago

I think something is very wrong, when the base of the economy - money - is so complicated, that only few people understand it. This just gives room for fraud and bad conspiracy theories (the jews control all the money! .. so I heard couple of times) But a better alternative? Well, cryptocoins are not exactly simple either(despite their other flaws). And most other concepts I have heard of, are hellish in the details, too.

BurningFrog 4y ago
Bitcoin is pretty simple to understand. In part, I think that is why so many criticize it.
- andirk 4y ago
  I am a big fan of BTC and crypto and I see plenty of valid criticism. But most of it sounds like people wishing they got in at the beginning when it was offered to them. So now they must wish for its demise to counter.
rglover 4y ago
Bitcoin is the ideal alternative. It was designed to be exactly that. Crypto, on the other hand, is to Bitcoin what Herbalife is to healthy food. In terms of details, Bitcoin is straightforward. It can be boiled down to: instead of obscuring the system we use globally for exchanging value—leaving it prone to manipulation and corruption—Bitcoin makes this system trustless (meaning you don't have to take someone's word for it), transparent, and accessible to anyone, without limits, allowing them to transact globally. The reason most ignore Bitcoin is because the very people that run the existing system have the ability to push propaganda against it. The two favorites being: 1. It's bad for the climate (ignoring the existing system's required infrastructure which makes Bitcoin look like a hippie commune). 2. It doesn't have enough transaction capacity (ignoring or being oblivious to the Lightning Network/off-chain settlement). There is no technical reason that Bitcoin can't work; it's purely a problem of perception and operant conditioning.
- hutzlibu 4y ago

andrepd 4y ago

> But it's not 'as they wish' as you say, depending on where they operate, they are typically constrained by capital and liquidity ratios set by their regulator. Okay! Then why don't families and individuals have an equivalent mechanism? Set capital and liquidity ratios by law. E.g.: if you have 10k$ on hand, you can create 100k$ of liabilities. If you have 10k$ on hand and 50$k in medium-risk investments, you can create 300k$ of liabilities, and buy a house that way. Something along those lines. Of course, since ordinary people can't do that, they need to go to middlemen: the very banks who can do that x) Doesn't strike me as very fair.

deeg 4y ago
Technically speaking, you can do this. For example you could create a private VC firm and convince people to give you their money. You could then "loan" that money to a start-up. That start-up would then pay its employees with the money who could re-invest it with you. You take that money and "loan" it to another start-up. Voila, you've created capital. As soon as you start taking other people's money you are subject to a ton of regulations for limiting fraud. In the above example if you took the funds and bought a house you'd be potentially guilty of fraud.
- andrepd 4y ago
  That has 0 to do with what I said, please re-read.