4 ms·

There are many errors here. A core one is this: > As you'd guess, this only becomes a problem when people run the bank and the bank needs to sell those Treasur

There are many errors here. A core one is this: > As you'd guess, this only becomes a problem when people run the bank and the bank needs to sell those Treasuries to meet deposit requirements. Go through a though process: - If you can deposit your money into a bank with 5% returns and with 0.1% returns, where will you put it? - If a bank is locked into a long-term investment with subpar yields, what kinds of interest rates can it offer? - If other banks can trivially give higher yields, where will money go? BOA is holding securities with (1) a lower resale value if sold now (2) lower yields if held to maturity. It's almost the same thing. If I buy a 30-year bond with a 1% yield /on the expectation of being able to offer deposits at a 0.5% yield/, and suddenly /depositors expect a 5% yield/, I'm in deep trouble.

RC_ITR 3y ago
I am surprised you think that the deposit market is that liquid and yield-driven enough to claim I’m making errors! To answer your question, I along with most Americans will keep it in my checking account because I use it as a working capital account and not an investment account. The median consumer checking account balance is <$10k and hasn’t yielded anything above 1% in a generation. [0] I will keep a relatively flat balance in my checking account indefinitely - long enough for the Treasuries to cycle. Your argument works for banks like Schwab, but BoA’s deposits don’t look the way you think they do. Americans looking for yield never put their money into places like BoA anyway (it’s not like they ever competed on rates as long as anyone can remember). Besides, wouldn’t we have already seen the flight if that was going to happen? Why now are depositors going to wake up to higher yields at smaller institutions? To date, BoA’s deposits are roughly following the trend of all deposits [1] [0] https://www.jpmorganchase.com/institute/research/household-income-spending/household-pulse-cash-balances-at-year-end https://www.jpmorganchase.com/institute/research/household-i... [1] https://fred.stlouisfed.org/series/BOGZ1FL193020005Q https://fred.stlouisfed.org/series/BOGZ1FL193020005Q
- frognumber 3y ago
  Good and valid points. However, I would argue, at the end of the day, it doesn't matter. At some point, whatever happens, BoA will have significantly lower returns than competitors. If that doesn't translate into returns on accounts anywhere, in even a relatively efficient market, that will translate into customer service, or some other place. Competitors will have a lot more money to work with both to keep customers happy, and for profits/avoiding losses. That's not sustainable.

RC_ITR 3y ago

I am surprised you think that the deposit market is that liquid and yield-driven enough to claim I’m making errors! To answer your question, I along with most Americans will keep it in my checking account because I use it as a working capital account and not an investment account. The median consumer checking account balance is <$10k and hasn’t yielded anything above 1% in a generation. [0] I will keep a relatively flat balance in my checking account indefinitely - long enough for the Treasuries to cycle. Your argument works for banks like Schwab, but BoA’s deposits don’t look the way you think they do. Americans looking for yield never put their money into places like BoA anyway (it’s not like they ever competed on rates as long as anyone can remember). Besides, wouldn’t we have already seen the flight if that was going to happen? Why now are depositors going to wake up to higher yields at smaller institutions? To date, BoA’s deposits are roughly following the trend of all deposits [1] [0] https://www.jpmorganchase.com/institute/research/household-income-spending/household-pulse-cash-balances-at-year-end https://www.jpmorganchase.com/institute/research/household-i... [1] https://fred.stlouisfed.org/series/BOGZ1FL193020005Q https://fred.stlouisfed.org/series/BOGZ1FL193020005Q

frognumber 3y ago
Good and valid points. However, I would argue, at the end of the day, it doesn't matter. At some point, whatever happens, BoA will have significantly lower returns than competitors. If that doesn't translate into returns on accounts anywhere, in even a relatively efficient market, that will translate into customer service, or some other place. Competitors will have a lot more money to work with both to keep customers happy, and for profits/avoiding losses. That's not sustainable.