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"Currently, all U.S. banks are subject to a balance sheet leverage ratio, which requires them to maintain a ratio of tier 1 capital to balance sheet assets at a

"Currently, all U.S. banks are subject to a balance sheet leverage ratio, which requires them to maintain a ratio of tier 1 capital to balance sheet assets at a minimum level of 4%. In order to be well-capitalized, banks must achieve a 5% minimum leverage ratio" So FTX had an 11% leverage ratio, pretty good.

VagueMag 4y ago
FTX was not an FDIC-insured bank with the ability to borrow funds at the Fed discount window, and it did not tell its customers it would be lending out their funds.
- puchatek 4y ago
  The last sentence is crucial and probably what will get SBF in trouble.
- aeternum 4y ago
  Yeah this is a key point, and not only did they not tell customers, their TOS was quite explicit about not loaning customer funds: "You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading." The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."
ttul 4y ago
Ahh, but FTX is not supposed to be a bank.
tyre 4y ago
You must consider what the banks are lending with that ratio. It’s mostly mortgages, which are far less risky than what FTX was doing.
- bitxbitxbitcoin 4y ago
  Hard to quantify far less but a few orders of magnitude probably isn’t too “far off.”
  - ozzydave 4y ago
    Closer to selling mortgages for metaverse real estate
csa 4y ago
> So FTX had an 11% leverage ratio, pretty good. A better comparison would be a stock brokerage that took your money to buy specific stocks on your behalf but then did something totally different, including “investing” in illiquid assets. If they had just bought the stock you requested, then they could just liquidate your stock at market price when you said you want to sell. This was not the situation that FTX was/is in. Instead, the way FTX allocated money/assets was suspicious (at best) if not flat out irresponsible and deceptive. Also, FTX was not and is not a bank, and the idea that this is levering in the same way regulated banks lever is laughable.
- drexlspivey 4y ago
  Stock brokerages also offer margin accounts. You send them $5k and you buy stock worth $20k. How do you suppose this happens?
  - jcliff 4y ago
    brokerages need to have cash on hand to loan. they can partner with a bank, or it can come from their own balance sheet or investors, but it's not printed out of thin air.
    - aeternum 4y ago
      In practice, aren't almost all of them either a bank themselves or partner one or more banks and auto-sweep customer deposits into these 'program banks'? Sure it might be slightly more convoluted, but at the end of the day isn't this still customer deposits funding margin/loans?
bananapub 4y ago
??? banks hold real life assets, that can be resold, like mortgages or loans to credit-worthy people. they also have access to central banks, and other big banks who might recapitalise them if they have bad luck. FTX had a bundle of funbacks, which it had also printed, and are of no intrinsic worth. of course the liquidity and reserve requirements are different.

VagueMag 4y ago

FTX was not an FDIC-insured bank with the ability to borrow funds at the Fed discount window, and it did not tell its customers it would be lending out their funds.

puchatek 4y ago
The last sentence is crucial and probably what will get SBF in trouble.
aeternum 4y ago
Yeah this is a key point, and not only did they not tell customers, their TOS was quite explicit about not loaning customer funds: "You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading." The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."

ttul 4y ago

Ahh, but FTX is not supposed to be a bank.

tyre 4y ago

You must consider what the banks are lending with that ratio. It’s mostly mortgages, which are far less risky than what FTX was doing.

bitxbitxbitcoin 4y ago
Hard to quantify far less but a few orders of magnitude probably isn’t too “far off.”
- ozzydave 4y ago
  Closer to selling mortgages for metaverse real estate

csa 4y ago

> So FTX had an 11% leverage ratio, pretty good. A better comparison would be a stock brokerage that took your money to buy specific stocks on your behalf but then did something totally different, including “investing” in illiquid assets. If they had just bought the stock you requested, then they could just liquidate your stock at market price when you said you want to sell. This was not the situation that FTX was/is in. Instead, the way FTX allocated money/assets was suspicious (at best) if not flat out irresponsible and deceptive. Also, FTX was not and is not a bank, and the idea that this is levering in the same way regulated banks lever is laughable.

drexlspivey 4y ago
Stock brokerages also offer margin accounts. You send them $5k and you buy stock worth $20k. How do you suppose this happens?
- jcliff 4y ago
  brokerages need to have cash on hand to loan. they can partner with a bank, or it can come from their own balance sheet or investors, but it's not printed out of thin air.
  - aeternum 4y ago
    In practice, aren't almost all of them either a bank themselves or partner one or more banks and auto-sweep customer deposits into these 'program banks'? Sure it might be slightly more convoluted, but at the end of the day isn't this still customer deposits funding margin/loans?

bananapub 4y ago

??? banks hold real life assets, that can be resold, like mortgages or loans to credit-worthy people. they also have access to central banks, and other big banks who might recapitalise them if they have bad luck. FTX had a bundle of funbacks, which it had also printed, and are of no intrinsic worth. of course the liquidity and reserve requirements are different.