Oct

30

"Repo-Acalypse Now….":

At least in theory, big-systemic banks with unlimited access to FED liquidity have absolutely no requirement to maintain any cash balances at all (While still complying with the Basel requirements). Because of the instantly available FED liquidity these behemoths are insulated from "runs" and in fact, although they would vehemently deny it publicly, look forward to these liquidity crunches as an opportunity to expand market share, absorbing their smaller "non-systemic" rivals and picking up distressed assets at bargain prices. Because of this implicit bail-out guarantee, they are able to invest their "free capital" in any dog-shit, boondoggle, deals they choose as long as they generate significant fees, which is exactly what they've done. Conversely, "non-systemic banks", without direct FED/liquidity access and "free capital" are forced to maintain higher cash balances, have no/little access to these global-fee-generating-boondoggles, starving them of albeit fleeting/fake earnings.

Amar Somal comments and introduces himself: 

Hi All,

Just to start, I thought the article was excellent and really enjoyed the ideas put forward.

My name is Amar, I'm a student (Geophysics with a love of stats–frequentist & bayesian) in the UK (born & raised) and new to the list. Trying my best to learn about markets and understand what drives them–finding it to be a very enjoyable intellectual challenge. Very much enjoy being part of the thread and hope to contribute in a meaningful way over time.


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