• bank finance

    From RichD@21:1/5 to All on Mon Mar 13 16:38:59 2023
    Re the SVB failure: when they talk about a bank's assets
    and liabilities, what does that mean, exactly?

    I figure a lawyer group is a reasonable place to ask
    such a question -

    --
    Rich

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  • From Barry Gold@21:1/5 to RichD on Tue Mar 14 07:50:32 2023
    On 3/13/2023 4:38 PM, RichD wrote:
    Re the SVB failure: when they talk about a bank's assets
    and liabilities, what does that mean, exactly?

    I figure a lawyer group is a reasonable place to ask
    such a question -

    I think it's more of a financial question than a legal one, but I'll try anyway:

    Assets are the things you own. For business purposes, these are things
    that you own that have a value: stocks, bonds, loans, cash on hand,
    deposits in the Federal Reserve, and various rights (including the right
    to borrow money from the Federal Reserve Bank), etc. It can also include
    any buildings you own and "chattels" (moveable property): office
    furniture, even pens, pencils, desktop computers, etc.

    Liabilities are things that someone else has the right to. The main
    liabilities of a bank are the deposits. We call them "deposits", but in
    fact they are loans -- when you "deposit" money in a bank, you are in
    fact lending it to the bank, and the bank turns around and lends most of
    it to other people. If the bank is well-run, it will have enough money
    to pay depositors when they ask to withdraw it, or to pay other banks
    when those banks send you checks written by your depositors, which other
    people have 'deposited' in their accounts at those banks.

    For any business (and even your ordinary household), your assets should
    exceed your liabilities. Otherwise you are in trouble.
    --
    I do so have a memory. It's backed up on DVD... somewhere...

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  • From Stuart O. Bronstein@21:1/5 to RichD on Tue Mar 14 09:51:37 2023
    RichD <r_delaney2001@yahoo.com> wrote:

    Re the SVB failure: when they talk about a bank's assets
    and liabilities, what does that mean, exactly?

    I figure a lawyer group is a reasonable place to ask
    such a question -

    Reminds me of the story about the senior partner at a CPA firm. Every
    day he would go into his office, unlock a drawer, look inside and then
    lock it up again. Everyone was curious what that was all about. So
    when he retired, some of the employees went into the office, picked the
    lock on that drawer and opened it up. Inside was a piece of paper that
    simply said,

    "Debits on the left, credits on the right."


    --
    Stu
    http://DownToEarthLawyer.com


    --
    This email has been checked for viruses by AVG antivirus software.
    www.avg.com

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  • From Rick@21:1/5 to Barry Gold on Tue Mar 14 15:17:15 2023
    "Barry Gold" wrote in message news:tup51c$34dvn$1@dont-email.me...

    On 3/13/2023 4:38 PM, RichD wrote:
    Re the SVB failure: when they talk about a bank's assets
    and liabilities, what does that mean, exactly?

    I figure a lawyer group is a reasonable place to ask
    such a question -

    I think it's more of a financial question than a legal one, but I'll try >anyway:

    Assets are the things you own. For business purposes, these are things that >you own that have a value: stocks, bonds, loans, cash on hand, deposits in >the Federal Reserve, and various rights (including the right to borrow
    money from the Federal Reserve Bank), etc. It can also include any
    buildings you own and "chattels" (moveable property): office furniture,
    even pens, pencils, desktop computers, etc.

    Liabilities are things that someone else has the right to. The main >liabilities of a bank are the deposits. We call them "deposits", but in
    fact they are loans -- when you "deposit" money in a bank, you are in fact >lending it to the bank, and the bank turns around and lends most of it to >other people. If the bank is well-run, it will have enough money to pay >depositors when they ask to withdraw it, or to pay other banks when those >banks send you checks written by your depositors, which other people have >'deposited' in their accounts at those banks.

    For any business (and even your ordinary household), your assets should >exceed your liabilities. Otherwise you are in trouble.

    It used to be that banks had to keep a certain minimum reserve on hand -
    like 10% of deposits - but I think that requirement went away during Covid. Nowadays, I believe there is no minimum reserve required - which could be dangerous.


    --

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  • From Barry Gold@21:1/5 to Rick on Tue Mar 14 22:36:59 2023
    On 3/14/2023 3:17 PM, Rick wrote:
    "Barry Gold"  wrote in message news:tup51c$34dvn$1@dont-email.me...

    On 3/13/2023 4:38 PM, RichD wrote:
    Re the SVB failure: when they talk about a bank's assets
    and liabilities, what does that mean, exactly?

    I figure a lawyer group is a reasonable place to ask
    such a question -

    I think it's more of a financial question than a legal one, but I'll
    try anyway:

    Assets are the things you own. For business purposes, these are things
    that you own that have a value: stocks, bonds, loans, cash on hand,
    deposits in the Federal Reserve, and various rights (including the
    right to borrow money from the Federal Reserve Bank), etc. It can also
    include any buildings you own and "chattels" (moveable property):
    office furniture, even pens, pencils, desktop computers, etc.

    Liabilities are things that someone else has the right to. The main
    liabilities of a bank are the deposits. We call them "deposits", but
    in fact they are loans -- when you "deposit" money in a bank, you are
    in fact lending it to the bank, and the bank turns around and lends
    most of it to other people. If the bank is well-run, it will have
    enough money to pay depositors when they ask to withdraw it, or to pay
    other banks when those banks send you checks written by your
    depositors, which other people have 'deposited' in their accounts at
    those banks.

    For any business (and even your ordinary household), your assets
    should exceed your liabilities. Otherwise you are in trouble.

    It used to be that banks had to keep a certain minimum reserve on hand -
    like 10% of deposits - but I think that requirement went away during
    Covid. Nowadays, I believe there is no minimum reserve required - which
    could be dangerous.
    --

    According to the FDIC, the current reserve ratio is 2%. This was a bit startling to me -- not because it was low, but because there used to be
    higher reserve requirements for "demand deposits" (where the depositor
    can ask for his money at any time and get it in full) than for CDs
    (where the depositor will lose 6 or 12 months of interest on any money
    that they withdraw before the CD matures).
    --
    I do so have a memory. It's backed up on DVD... somewhere...

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  • From Jethro_uk@21:1/5 to Rick on Wed Mar 15 08:14:16 2023
    On Tue, 14 Mar 2023 15:17:15 -0700, Rick wrote:

    "Barry Gold" wrote in message news:tup51c$34dvn$1@dont-email.me...

    On 3/13/2023 4:38 PM, RichD wrote:
    Re the SVB failure: when they talk about a bank's assets and
    liabilities, what does that mean, exactly?

    I figure a lawyer group is a reasonable place to ask such a question -

    I think it's more of a financial question than a legal one, but I'll try >>anyway:

    Assets are the things you own. For business purposes, these are things
    that you own that have a value: stocks, bonds, loans, cash on hand, >>deposits in the Federal Reserve, and various rights (including the right
    to borrow money from the Federal Reserve Bank), etc. It can also include >>any buildings you own and "chattels" (moveable property): office
    furniture, even pens, pencils, desktop computers, etc.

    Liabilities are things that someone else has the right to. The main >>liabilities of a bank are the deposits. We call them "deposits", but in >>fact they are loans -- when you "deposit" money in a bank, you are in
    fact lending it to the bank, and the bank turns around and lends most of
    it to other people. If the bank is well-run, it will have enough money
    to pay depositors when they ask to withdraw it, or to pay other banks
    when those banks send you checks written by your depositors, which other >>people have 'deposited' in their accounts at those banks.

    For any business (and even your ordinary household), your assets should >>exceed your liabilities. Otherwise you are in trouble.

    It used to be that banks had to keep a certain minimum reserve on hand -
    like 10% of deposits - but I think that requirement went away during
    Covid.
    Nowadays, I believe there is no minimum reserve required - which could
    be dangerous.

    It appears to be a universal whine from the finance community that such requirements "stifle investment". And every so often that manages to fool regulators who quietly allow the public to forget that however much you
    like to dress it up with acronyms and pizazz, it is still gambling with
    other peoples money.

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  • From RichD@21:1/5 to Barry Gold on Wed Mar 15 15:46:22 2023
    On March 14, Barry Gold wrote:
    Re the SVB failure: when they talk about a bank's assets
    and liabilities, what does that mean, exactly?
    I figure a lawyer group is a reasonable place to ask
    such a question -

    I think it's more of a financial question than a legal one, but I'll try anyway:

    My cousin told me that law school is the best available business education.

    Assets are the things you own. For business purposes, these are things
    that you own that have a value: stocks, bonds, loans, cash on hand,
    deposits in the Federal Reserve, and various rights (including the right
    to borrow money from the Federal Reserve Bank), etc.
    Liabilities are things that someone else has the right to. The main liabilities of a bank are the deposits. We call them "deposits", but in
    fact they are loans -- when you "deposit" money in a bank, you are in
    fact lending it to the bank, and the bank turns around and lends most of
    it to other people.

    Then a bank's liabilities are its deposits.

    But assets are what it owns. If it's profitable, it owns that, in cash, bonds, whatever. But it doesn't own its outstanding loans, that's the depositors' money. So when the report says SVB has $200 billion assets, how is
    that calculated?

    If the bank is well-run, it will have enough money
    to pay depositors when they ask to withdraw it,

    https://www.youtube.com/watch?v=1VIk4FIshp0


    --
    Rich

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  • From Barry Gold@21:1/5 to RichD on Wed Mar 15 18:04:27 2023
    On 3/15/2023 3:46 PM, RichD wrote:
    Then a bank's liabilities are its deposits.

    But assets are what it owns. If it's profitable, it owns that, in cash, bonds,
    whatever. But it doesn't own its outstanding loans, that's the depositors' money. So when the report says SVB has $200 billion assets, how is
    that calculated?

    A bank's liabilities are everything that it owes to somebody else. That includes deposits, but also as-yet-unpaid salaries, rent on the
    building(s) if they don't own it, taxes on their profits if any and on
    any property that they own.

    If SVB has "$200 billion in assets", that's everything that they own:
    All their outstanding loans(*), any stocks and bonds that they own,
    their buildings and the land they stand on (if they own it), right down
    to the furniture, lights, computers etc. in their headquarters and
    branches. Oh, yes, and their name -- if they have a good reputation,
    their name is an asset.

    (*) Except those that an accountant would classify as "uncollectable"

    --
    I do so have a memory. It's backed up on DVD... somewhere...

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  • From Barry Gold@21:1/5 to RichD on Wed Mar 15 21:22:43 2023
    On 3/15/2023 3:46 PM, RichD wrote:
    My cousin told me that law school is the best available business education.

    Assets are the things you own. For business purposes, these are things
    that you own that have a value: stocks, bonds, loans, cash on hand,
    deposits in the Federal Reserve, and various rights (including the right
    to borrow money from the Federal Reserve Bank), etc.
    Liabilities are things that someone else has the right to. The main
    liabilities of a bank are the deposits. We call them "deposits", but in
    fact they are loans -- when you "deposit" money in a bank, you are in
    fact lending it to the bank, and the bank turns around and lends most of
    it to other people.
    Then a bank's liabilities are its deposits.

    But assets are what it owns. If it's profitable, it owns that, in cash, bonds,
    whatever. But it doesn't own its outstanding loans, that's the depositors' money. So when the report says SVB has $200 billion assets, how is
    that calculated?

    No. The outstanding loans are the bank's property -- assets. It's an
    important distinction. If the loans were the depositors' property, the
    bank wouldn't have the right to sell them. But banks do that all the
    time. There's a market for them.

    Some banks "hold" almost no loans. They arrange the loan, they transfer
    the money to the borrower (or to escrow in the case of real-property
    purchase loans), then they turn around and sell it to people who are
    willing to "buy" the risk (which has a negative value) in exchange for
    the prospect of collecting the monthly (or yearly or whatever) payments.

    Double-entry bookkeeping is a weird thing. Some things that you would
    think are assets are actually liabilities. Perhaps the weirdest on is
    "net worth". Any business has assets (stock in trade, furniture, the
    lease(*) on the place of business, and "goodwill"(+). A successful
    business is worth more than its tangible assets (plus intangibles like
    the right to occupy the premises and do business there). The difference
    is the value of the business to its owners (shareholders, partners, or
    the sole-proprietor). And THAT shows up as a liability in double-entry bookkeeping.(%) Why? Because when you add up all the assets and
    liabilities, the net result is supposed to be zero.

    (*) Yes, the lease is an asset. When my father bought his first parking
    lot, he paid the previous owner for the right to take over the remaining months/years on the lease, because that's worth more than the net
    present value of the rent he would have to pay. (Otherwise the lot
    wouldn't be worth buying, right?)

    (+) That's the amount that the business is worth over and above its
    tangible assets. It reflects the probability that customers will come
    back in the future and/or tell their friends how much they liked the
    goods and services, leading to future sales.

    (%) "bookkeeping" has three double-letters in a row. My Aunt Tilly
    married a bookkeeper. But that's another story.


    --
    I do so have a memory. It's backed up on DVD... somewhere...

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  • From micky@21:1/5 to Gold on Thu Mar 16 07:39:45 2023
    In misc.legal.moderated, on Tue, 14 Mar 2023 22:36:59 -0700 (PDT), Barry
    Gold <bgold@labcats.org> wrote:

    On 3/14/2023 3:17 PM, Rick wrote:
    "Barry Gold" wrote in message news:tup51c$34dvn$1@dont-email.me...

    On 3/13/2023 4:38 PM, RichD wrote:
    Re the SVB failure: when they talk about a bank's assets
    and liabilities, what does that mean, exactly?

    I figure a lawyer group is a reasonable place to ask
    such a question -

    I think it's more of a financial question than a legal one, but I'll
    try anyway:

    Assets are the things you own. For business purposes, these are things
    that you own that have a value: stocks, bonds, loans, cash on hand,
    deposits in the Federal Reserve, and various rights (including the
    right to borrow money from the Federal Reserve Bank), etc. It can also
    include any buildings you own and "chattels" (moveable property):
    office furniture, even pens, pencils, desktop computers, etc.

    Liabilities are things that someone else has the right to. The main
    liabilities of a bank are the deposits. We call them "deposits", but
    in fact they are loans -- when you "deposit" money in a bank, you are
    in fact lending it to the bank, and the bank turns around and lends
    most of it to other people. If the bank is well-run, it will have
    enough money to pay depositors when they ask to withdraw it, or to pay
    other banks when those banks send you checks written by your
    depositors, which other people have 'deposited' in their accounts at
    those banks.

    For any business (and even your ordinary household), your assets
    should exceed your liabilities. Otherwise you are in trouble.

    It used to be that banks had to keep a certain minimum reserve on hand -
    like 10% of deposits - but I think that requirement went away during
    Covid. Nowadays, I believe there is no minimum reserve required - which
    could be dangerous.
    --

    According to the FDIC, the current reserve ratio is 2%. This was a bit >startling to me -- not because it was low, but because there used to be >higher reserve requirements for "demand deposits" (where the depositor
    can ask for his money at any time and get it in full) than for CDs
    (where the depositor will lose 6 or 12 months of interest on any money
    that they withdraw before the CD matures).

    I thought most accounts were not demand deposits, and even though the
    bank usually gave money back immediately, by law it had 30 days before
    it had to let someone withdraw his money, and that that rule was
    precisely to prevent runs. When did hat change?


    Did SVB have "$200 billion in assets"? Don't they usually say something
    like "$200 billion in deposits"?

    --
    I think you can tell, but just to be sure:
    I am not a lawyer.

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  • From Roy@21:1/5 to All on Thu Mar 16 08:42:23 2023
    I found this article this morning which gives a lot of info on what
    happened and points fingers at just about everyone

    "SVB’s downfall was largely caused by a record $42 billion bank run that
    left the bank in desperate need of cash."

    https://www.cnn.com/2023/03/16/investing/premarket-stocks-trading/index.html

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  • From Barry Gold@21:1/5 to micky on Thu Mar 16 08:39:04 2023
    On 3/16/2023 7:39 AM, micky wrote:
    I thought most accounts were not demand deposits, and even though the
    bank usually gave money back immediately, by law it had 30 days before
    it had to let someone withdraw his money, and that that rule was
    precisely to prevent runs. When did hat change?


    Did SVB have "$200 billion in assets"? Don't they usually say something
    like "$200 billion in deposits"?

    Last time I looked at the law, the FDIC can actually make you wait up to
    180 days (half a year) to get your money back. This gives the government
    to find another bank that will take over the accounts (liabilities) and
    assets, sometimes with additional money contributed by the Fed.

    In practice, they get it done as fast as they can, as witness SVB where
    the FDIC decided they needed to get everything going by the next
    business day (Monday).

    Banks boast of having $xxx in assets. The fact that many of those assets
    are not "liquid"(*) is carefully not mentioned. As I mentioned, a
    prudent bank does not "put all (their) eggs in one basket." They will
    hold a mix of mortgages (backed by real property, which is usually(+)
    fairly stable.


    I'm reminded of the book (and movie) The Big Short, which went into some
    detail about the causes of the 2008 crash -- and even made it mostly understandable to laymen like me. One of the protagonists asked his
    partners, "-Are these guys crooked, or are they just crazy.-"(%)

    After talking to a few bank executives, he changed his mind. "-They're
    not crooked or crazy. They're just plain stupid!-"
    (*) That is, they can't be turned into cash or cash equivalents in less
    than a day.

    (+) 2008 being the exception: incautious mortgage lending had created a "bubble" in the real estate market, and then the banks lost a lot of
    money when millions of people couldn't make their payments.

    (%) "-...-": pseudo quotes. I don't remember the exact words, but the
    meaning is preserved


    --
    I do so have a memory. It's backed up on DVD... somewhere...

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  • From RichD@21:1/5 to Roy on Fri Mar 24 12:44:09 2023
    On March 16, Roy wrote:
    I found this article this morning which gives a lot of info on what
    happened and points fingers at just about everyone

    "SVB’s downfall was largely caused by a record $42 billion bank run that left the bank in desperate need of cash." https://www.cnn.com/2023/03/16/investing/premarket-stocks-trading/index.html

    What exactly is bank equity, what does it mean to raise equity?

    --
    Rich

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