3 ms·

Loans are not made from deposits even now. But you may well be right that there are operational details that make my idea impossible, I don't know. HN seems t

by tome 4y ago

Loans are not made from deposits even now. But you may well be right that there are operational details that make my idea impossible, I don't know. HN seems to have some people with understanding of corporate finance, so hopefully they'll be able to educate me.

kgwgk 4y ago
> Loans are not made from deposits even now. But banks have more deposits than loans even now. Because they need to get money from somewhere.
- tome 4y ago
  No they don't, because the banking system is fractional reserve. Pretty much every bank has more outstanding loans that deposits (even if part of those loans is to the government).
  - kgwgk 4y ago
    Can you point to a bank with more loans than deposits in its balance sheet? (Honest question, I'm curious.) As far as I can see the banking system in aggregate has more deposits than loans: https://www.federalreserve.gov/releases/h8/current/default.htm https://www.federalreserve.gov/releases/h8/current/default.h...
    - tome 4y ago
      Thanks, I think there's something faulty in my understanding of terminology. By "deposits" I was understanding "deposits backed by holdings at the central bank". The original question I was trying to answer was "If everyone gets cash from loans, who'll be the depositors putting cash in the bank to be loaned?". I just don't think that question is well-posed. A bank creating a loan requires new cash deposits of only R x loan_amount, where R is the reserve requirement. For making payroll this ought to be almost nothing.
      - kgwgk 4y ago
        > By "deposits" I was understanding "deposits backed by holdings at the central bank". Ok. That would be reserves. But it's not like some deposits are backed and others are not (leaving aside the existence of different kinds of deposits) - what you have is a total amount of deposits and a total amount of reserves.
        tome 4y ago
        Yes, I understand that. But I don't understand why we couldn't have a system whereby, to cover payroll, a bank creates a loan to each company every payroll day, transfers cash to the (FDIC insured) bank accounts of employees, and then liquidates some of the company's T-Bills over the next couple of hours or days to cover it. That seems like a way of making sure everyone's paid without companies having to risk > $250k balances at any time.
chernevik 4y ago
I think there are a variety of products reducing cash risk to zero. Something like t-bill positions for overdraft protection might be one such. But notice that it's not in the bank's interest to provide them or push them if they do. They would rather you trust them and provide them the cheap float.
- tome 4y ago
  Yeah, this seems to be what I'm learning from https://twitter.com/WallStCynic/status/1634901599423197191 https://twitter.com/WallStCynic/status/1634901599423197191 Perhaps some near-fraudulent collusion between SVB, VCs and the executives of the banked startups then ...
  - chernevik 4y ago
    I think the story of the relationships between SVB and the VCs would be fascinating. Less so the executives, who probably did largely as their investors advise. Their individual business probably isn't that important on its own. It's the VC partner who sees to it that 10 portfolio companies a year drop their capital raise into cheap deposits who really mattered.
    - tome 4y ago
      That thread seems to be insinuating that startup executives were offered mortgages in return for keeping their treasury as deposits in SVB. If so that sounds like a massive violation of fiduciary duty. (I don't have any concrete evidence of this and I'm just going by one Twitter thread I've read, so take with a mountain of salt.)
      - querulous 4y ago
        i don't think it's as nefarious as that the issue is that startup founders might have a lot of implied wealth based on the equity they hold and money raised but a "mainstream" bank is going to look at that equity, assess it as non-liquid and highly speculative and reject any loan applications svb was more likely to extend personal loans to startup founders because -- in theory at least -- they better understood startup finance and they were incentivized to provide good service to prospective customers of their more business focused activities

by tome 4y ago

kgwgk 4y ago

> Loans are not made from deposits even now. But banks have more deposits than loans even now. Because they need to get money from somewhere.

tome 4y ago
No they don't, because the banking system is fractional reserve. Pretty much every bank has more outstanding loans that deposits (even if part of those loans is to the government).
- kgwgk 4y ago
  Can you point to a bank with more loans than deposits in its balance sheet? (Honest question, I'm curious.) As far as I can see the banking system in aggregate has more deposits than loans: https://www.federalreserve.gov/releases/h8/current/default.htm https://www.federalreserve.gov/releases/h8/current/default.h...
  - tome 4y ago
    Thanks, I think there's something faulty in my understanding of terminology. By "deposits" I was understanding "deposits backed by holdings at the central bank". The original question I was trying to answer was "If everyone gets cash from loans, who'll be the depositors putting cash in the bank to be loaned?". I just don't think that question is well-posed. A bank creating a loan requires new cash deposits of only R x loan_amount, where R is the reserve requirement. For making payroll this ought to be almost nothing.
    - kgwgk 4y ago
      > By "deposits" I was understanding "deposits backed by holdings at the central bank". Ok. That would be reserves. But it's not like some deposits are backed and others are not (leaving aside the existence of different kinds of deposits) - what you have is a total amount of deposits and a total amount of reserves.
      - tome 4y ago
        Yes, I understand that. But I don't understand why we couldn't have a system whereby, to cover payroll, a bank creates a loan to each company every payroll day, transfers cash to the (FDIC insured) bank accounts of employees, and then liquidates some of the company's T-Bills over the next couple of hours or days to cover it. That seems like a way of making sure everyone's paid without companies having to risk > $250k balances at any time.

chernevik 4y ago

I think there are a variety of products reducing cash risk to zero. Something like t-bill positions for overdraft protection might be one such. But notice that it's not in the bank's interest to provide them or push them if they do. They would rather you trust them and provide them the cheap float.

tome 4y ago
Yeah, this seems to be what I'm learning from https://twitter.com/WallStCynic/status/1634901599423197191 https://twitter.com/WallStCynic/status/1634901599423197191 Perhaps some near-fraudulent collusion between SVB, VCs and the executives of the banked startups then ...
- chernevik 4y ago
  I think the story of the relationships between SVB and the VCs would be fascinating. Less so the executives, who probably did largely as their investors advise. Their individual business probably isn't that important on its own. It's the VC partner who sees to it that 10 portfolio companies a year drop their capital raise into cheap deposits who really mattered.
  - tome 4y ago
    That thread seems to be insinuating that startup executives were offered mortgages in return for keeping their treasury as deposits in SVB. If so that sounds like a massive violation of fiduciary duty. (I don't have any concrete evidence of this and I'm just going by one Twitter thread I've read, so take with a mountain of salt.)
    - querulous 4y ago
      i don't think it's as nefarious as that the issue is that startup founders might have a lot of implied wealth based on the equity they hold and money raised but a "mainstream" bank is going to look at that equity, assess it as non-liquid and highly speculative and reject any loan applications svb was more likely to extend personal loans to startup founders because -- in theory at least -- they better understood startup finance and they were incentivized to provide good service to prospective customers of their more business focused activities