Topic: Banks have just been given permission to do YOLO trades (Read 114 times)

They need liquidity now. After the banking crisis is over, all they will look at is high risk high reward investments because, in the worst case scenario, they will be bailed out. I'm not saying they will go all in on crypto. They will just accept a much greater risk than before the banking crisis. 
Because the money market does not offer payment cards, cash transfers, it requires elementary knowledge that an ordinary bread eater does not have.
It's 2% for now, and it's not that low if we take a look at alternatives. 2% in bitcoin that can do x10 in 2-3 years and 98% in bonds that can do 1% apy if they lower interest rates back to where they were for the last decade. That 2% gives a nice amount of leverage that can even double a bank's annual profits. And if we take the amount of reserves we are talking about times 2%, we have more money than bitcoin capitalization. So it can have a high impact on bitcoin price = paper gains for banks = big bonuses for CEOs with zero risk (bailout in worst case scenario).And don't tell me that banks and their chefs don't care about profits.

This BTFD won’t apply to any purchases after March 15 2023. So they can’t YOLO into anything. Right now they won’t be buying anything because they need as much liquidity as possible for withdraws. They also are cutting lending for many customers to keep their liquidity.

And who knows if this will work. Why keep your money at a bank that pays 0% and can possibly fail when you can put it in the money markets and get 5% instead. I wonder how these banks will make money and survive.

First of all, we already know that they would pay themselves hefty bonuses disregarding whether they're profitable or on the verge of collapse. Second, the 2% seems modest enough not to cause overexposure, and, on the same token, won't make that much of a positive impact in case of success. Especially assuming that if the crypto goes up, they'd have to sell any excess above 2%.

So personally I'm rather indifferent to this idea.

bump

SVB, Signature Bank, and Sivergate. All of them collapsed ONLY because they were poorly managed. They manage their assets and liabilities like first-graders.They were too greedy and took too much risk. They simply gambled customers money on the "Will fed pivot or not" bet.They did not take actions to increase liquidity before a bank run, which should have been predicted by them, taking into account the profile of depositors (crypto and tech companies) and the amount of layoffs, blood, and pain we've seen in this industry over the past year.

What FED did with that? Filled the gap with our money. Buying assets from collapsing banks at 100 cents on the dollar. Assets that are now worth way less. They even created a special tool.that will be ready to use if other banks collapse in the future (Bank Term Funding Program).
So what's the point of them (banks) being rational, risk averse investors if they can either win or win (or at least not lose).


BIS (Bank for International Settlements) just a few months ago gave permission to banks to hold up to 2% in bitcoin.
"In its recently published Prudential Treatment of Crypto Asset Exposure Report for December 2022, the Bank for International Settlements (BIS) said that banks may now retain 2% of their reserves in cryptocurrencies. Until last June, the BIS authorized only a few institutions to keep no more than 1% of their reserves in cryptocurrencies.
Effective January 1, 2025, the policy identifies crypto assets and the acceptable means of processing them."https://coinculture.com/au/policy-regulation/bis-now-allows-banks-to-keep-2-of-their-reserves-in-crypto/



So if banks can have 2% of their reserves in bitcoin and ... they just get permission to do yolo trades ... how possible is it in your opinion that most of them will load risky assets (including bitcoin) and, in case of success, pay  themselves generous bonuses, and in case of failure, the FED is here to bail them out?