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Simkinn1 t1_jeac1mx wrote

Reply to comment by megaultraman in Subprime is back on the menu boys! by megaultraman

The fed borrow rate is a yearly rate. It’s not an upfront rate. If they hold it for a month or two they don’t owe the fed 5%. You need to learn how interest on loans work.

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megaultraman OP t1_jeadp7y wrote

My man, in order to not pay interest they need to pay back the principal. So where are they getting this $70 billion to pay back those loans in two months?! Sell their treasuries at a loss that is a lot greater than 5%? You need to learn how balance sheets work.

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Simkinn1 t1_jeag7r8 wrote

You need to know that banks don’t only hold bonds, they also hold loans that are paid back monthly etc. seems like you read a few headlines and think you gonna be able to run a bank now. No pun intended.

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megaultraman OP t1_jeaik93 wrote

Yes and that amount, less liabilities, is their profit margin. In total last year, that amount was $5 billion. But they now have $70 billion less in assets! That is what deposits are to a bank: liabilities. Otherwise, where do they get the money to give them their deposits back?

And instead of selling those assets for a massive loss, they borrowed against them! From the Fed. At 5%. So now they have 40% less assets to pay an extra $5 billion dollars in interest payments.

The question then, and the point of this post, is WHERE ARE THEY GETTING THAT MONEY?

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Simkinn1 t1_jeb1ndo wrote

My dude you are an alabaster regard.

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alphabetasoupa9 t1_jeb5ug2 wrote

Then please explain, because it seems like a valid question to me:

How will banks survive when they're losing depositors, can't offer high enough interest rates to attract and retain depositors, and are having to take loans out against their underwater assets at the Fed funds rate to pay out the depositors who are leaving?

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Optimistbott t1_jeb36nm wrote

But some are paying higher than the rate they get on safe assets including reserves which pay 4.9% (IORB).

Even if it's like credit card debt or safe mortgages or car loans or student loans, the fed's hiking, default risk increases, and that's priced in, but regardless, banks seem to be getting into the weeds a bit.

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