You borrow at 20% but your bank borrows at 5%

Discussion in 'Markets & Economies' started by BiteMYshineyMETALcoins, Jan 26, 2020.

  1. BiteMYshineyMETALcoins

    BiteMYshineyMETALcoins Member

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    Just some fuel for my conspiracy fire. How does commonwealth bank have 1 trillion dollars in exposure aka "debt" but only 57 million in capital
    Screenshot_20200127-003749_Drive.jpg I've never even seen 1 trillion dollars of plastic.
    I doubt anyone anywhere even owns 1 trillion dollars of bullion. So my question is; where did the money come from...

    I think I might buy more fractionals this year
     
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  2. madaw1

    madaw1 Well-Known Member

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    Good choice...:)
     
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  3. wrcmad

    wrcmad Well-Known Member Silver Stacker

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    small factor of 1,000,000 fixed. ;)
     
  4. BiteMYshineyMETALcoins

    BiteMYshineyMETALcoins Member

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    Yes you are right. Idk where my b is..
     
  5. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    If you owe the bank a million dollars you have a problem. If you owe the bank a billion dollars they have a problem.
     
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  6. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    I think you find that between 60-70% of those recorded AUD1.023t liabilities are deposit / investment of funds in Commbank by retail (Mum & Dad) and businesses. In the banking world, banks classify deposits / TD / etc as liabilities as they owe that money back to someone / some entity. The balance of liabilities in the billions is usually some form of debt / hybrid debt-equity which banks issue to assist in debt maturity profile matching.
     
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  7. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    This is one the greatest truths you will ever hear.
     
  8. GoldenEye

    GoldenEye Well-Known Member Silver Stacker

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    Derivatives?
     
  9. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    Good question and it's murky. Most derivatives are held off balance sheet by the banks under APRA rules (and banks usually don't report the full value of their derivatives contracts) and only the mark to market value (profit or loss) of the derivatives position (and some form of on balance sheet derivatives) are reported on balance sheet / P&L.

    RBA (late 2019) data shows Australian bank derivatives (off balance sheet) to be circa AUD30-40 trillion and mainly made up of interest rate and FX swaps. Aust bank exposures to the likes of CDO's etc is very low compared to more standard interest rate and FX derivative contracts they enter into.

    https://www.rba.gov.au/publications...and-over-the-counter-derivatives-markets.html
     
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  10. wrcmad

    wrcmad Well-Known Member Silver Stacker

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    No.
    Loans.
    Read the expanded version.
     
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  11. milled

    milled Active Member

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    yep. This was my first thought. When you take out a loan, it is a liability to you, but an asset to the bank. The CBA, like all in the big four banks, nowadays has most of its business tied up in real estate loans.

    And last time I looked, the big 4 were worth more than 50% market share of the ASX200 (might have even been the whole ASX, would have to check)

    This is a big reason why interest rates have had nowhere to go but down for some time now. Real estate loans are so big that a small increase in interest rate repayments would put a lot of people underwater fast.

    Is it true to say you borrow at 20% and the bank at 5%? 20% maybe for a credit card, but I would have thought personal loan would be a lot lower, maybe 15% tops, more like 12%
    Also, banks borrow at lower than 5% I would think, if they need to. My understanding (lay) is that when you ask for a loan, they simply dial up a number out of nothing and credit your ledger that amount, if deemed creditworthy. Everything is about your capacity to repay principal + interest. That's what makes you an asset.
     
  12. milled

    milled Active Member

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    and - the banks are backstopped by bail in legislation enacted during Tony Abbot's government. That allows for depositors accounts to be plundered directly to deal with a liquidity crisis for the banks. As I recall, secured bond holders get priority above depositors on the depositors' own money.
     
  13. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    Good business sense, to borrow cheap and lend for more?
     
  14. alor

    alor Well-Known Member Silver Stacker

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    banks only borrow from interbank, overnight
    they can't touch customers deposits
     
  15. milled

    milled Active Member

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    Oh yes they can. In Australia, for sure.

    "The legislation allows our banking regulator APRA ‘crisis powers’ to secretly step in and run distressed banks. It allows APRA to then confiscate and write off certain types of bonds and hybrid securities and allows them to confiscate cash savings of SMSF’s."
    https://www.ainsliebullion.com.au/g...s-your-cash-now-/tabid/88/a/1722/default.aspx

    "Is your money really safe in a bank? One of the key outcomes of the G20 Summit held in Brisbane in 2014 was the agreement amongst those nations around the Bank for International Settlements’ (BIS) Financial Stability Board bail-in provisions. A bail-in creates a write off or conversion into shares (in a failing bank) of what that bank owes to unsecured creditors, instead of the government bailing the bank out (as was the case during the GFC). As a bank depositor, you are an unsecured creditor of that bank.https://www.ainsliebullion.com.au/g...n-e2-80-99t-safe/tabid/88/a/2070/default.aspx

    "legislation has been passed to use (read: steal, re-appropriate, seize, spend) investments and potentially deposited funds (the balance of your own savings account) to make insolvent banks solvent again."
    https://bradjamesmatthews.com/australia-new-bank-bail-in-laws/
    http://www.alancurrie.com/2015/01/29/has-australian-treasurer-now-approved-bank-bail-in-secretly/

    This happened under Tony Abbott from my memory, though searches don't index the matter easily. I remember it very well. We have Cyprus style bail out laws in Australia.

    Even before that, Kevin Rudd's government directly took money from depositors accounts, also declared a "national emergency" to allow him to use laws for national emergencies to spend taxpayers money on propaganda for a tax on mining companies. It was pure evil.
     
  16. alor

    alor Well-Known Member Silver Stacker

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    that is not what I mean, they view your money as theirs
    you lend it to them
    but the way the bank lend out money is not to use the money you just deposited to lend to other people
    they got to go to the inter bank to borrow, then lend to other people

    they just don't care about you and your money
    they only care if they could borrow that money to lend out

    so you are a risk to them, by withdrawing the money you just lend to the bank :)
     
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  17. milled

    milled Active Member

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    ok, but Australia has laws now, from what I remember, that allows the bank to "touch customers deposits"
    I agree with you - the banks see the money as theirs, not yours. Previously this was an agreement with the bank to keep your money safe. It is not safe any more and the interest rate is so low that when combined with inflation, income taxes and bank fees, the return is less than nothing unless the deposit is large.
    In Australia, accounts with more than 100,000 were directly accessed by Kevin Rudd's administration to pay for his profligacy.
    It may be different in Malaysia.
     

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