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Can you ELI5 this for me? Why is it terrible for the banks to simply sit on deposits if there aren't sound lending opportunities? I understand that the owners m
by lr4444lr 4y ago
Can you ELI5 this for me? Why is it terrible for the banks to simply sit on deposits if there aren't sound lending opportunities? I understand that the owners might prefer to sell rather than wait, but a small bank doesn't seem any inherently different than any other small business who's owner simply enjoys the work of running something. What is the inherent downside to idle deposits?
- semi_cityplan 4y agoDeposits aren’t free. We will use round numbers. If I take $100B in deposits and pay .5% interest, that’s an expense of $500M per year and including overhead even when rates were 0, deposits at a bank cost more than 0.5%. So I need to lend it out so I can make the spread and I’m not just bleeding it money
- kayamon 4y agoDeposits don't need to have interest paid. It's entirely possible for the money to simply sit there and not be invested in anything.
- semi_cityplan 4y agoFour questions - where does a bank store cash? What is the IORB and what are its underlying assumptions? What is the overhead cost in banking? What is the cost of ACH and a wire? I don’t contend you can just have money sit there. I also don’t contend that it was stupid in hindsight to be this levered to duration. But there is an overhead cost in banking.