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Comparing the balance sheet fluctuations of a bank to its market cap is meaningless. Banks are extremely leveraged by their nature, BA has like $3T in assets a

by ot 3y ago

Comparing the balance sheet fluctuations of a bank to its market cap is meaningless. Banks are extremely leveraged by their nature, BA has like $3T in assets and $2.8T in liabilities, so minor swings in assets value move the equity by amounts that are comparable to the market cap.

samspenc 3y ago
Thanks for this info, if I'm understanding this right, the current $131.6B in unrealized losses pales in comparison to their total 2.8T in liabilities (less than 5%). So even if they did have to sell all their bonds and lose all that money, it will account for less than 5% of their total liabilities and they would still be positive when calculating assets minus liabilities?
- ot 3y ago
  Yes, according to those numbers BoA is technically solvent.
jerf 3y ago
It does not follow from "Banks are extremely leveraged by their nature" that fluctuations in its asset value are meaningless. It is, right up until it isn't, and then it suddenly means everything. Which means it isn't meaningless at all. It's not like we live in a world where we've been banking for thousands of years without this ever being a problem. It was most recently a problem this year, and if your memory is fuzzy, it wasn't just Silicon Valley Bank. If you're going to excuse that away, then it was most recently a catastrophic problem in 2008, which isn't exactly "hasn't been a problem since the Roman empire" or anything. And if you're going to make excuses for the Global Financial Crisis and how that doesn't actually matter and doesn't need to be incorporated into anyone's models of how banks work, well, our world views are irreconcilably different. I can promise you the banks don't believe it's irrelevant.
- dmoy 3y ago
  Note GP didn't say "fluctuations in its asset value are meaningless", they said "Comparing the balance sheet fluctuations of a bank to its market cap is meaningless". For example US Bank has $50B market cap, $500B deposits, and closer to $700B total assets.
keep_reading 3y ago
> Banks are extremely leveraged by their nature Islamic banks aren't.

by ot 3y ago

samspenc 3y ago

Thanks for this info, if I'm understanding this right, the current $131.6B in unrealized losses pales in comparison to their total 2.8T in liabilities (less than 5%). So even if they did have to sell all their bonds and lose all that money, it will account for less than 5% of their total liabilities and they would still be positive when calculating assets minus liabilities?

ot 3y ago
Yes, according to those numbers BoA is technically solvent.

jerf 3y ago

It does not follow from "Banks are extremely leveraged by their nature" that fluctuations in its asset value are meaningless. It is, right up until it isn't, and then it suddenly means everything. Which means it isn't meaningless at all. It's not like we live in a world where we've been banking for thousands of years without this ever being a problem. It was most recently a problem this year, and if your memory is fuzzy, it wasn't just Silicon Valley Bank. If you're going to excuse that away, then it was most recently a catastrophic problem in 2008, which isn't exactly "hasn't been a problem since the Roman empire" or anything. And if you're going to make excuses for the Global Financial Crisis and how that doesn't actually matter and doesn't need to be incorporated into anyone's models of how banks work, well, our world views are irreconcilably different. I can promise you the banks don't believe it's irrelevant.

dmoy 3y ago
Note GP didn't say "fluctuations in its asset value are meaningless", they said "Comparing the balance sheet fluctuations of a bank to its market cap is meaningless". For example US Bank has $50B market cap, $500B deposits, and closer to $700B total assets.

keep_reading 3y ago

> Banks are extremely leveraged by their nature Islamic banks aren't.