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===Assets and liabilities=== | ===Assets and liabilities=== | ||
Banks are in the business of acquiring “financial assets”, mainly in the shape of loans of one sort or another that they extend to their customers and for which they receive interest and the repayment of principal; these they fund with [[liabilities]] — which are usually organised in a “[[capital structure]]” with customer deposits at the top, term loans, [[commercial paper]], senior debt, next, then [[subordinated]] debt, then [[contingent convertible securities]] which may, or may not,<ref>If you are [[Credit Suisse]].</ref> sit just ahead of a thin slice of [[shareholder equity]]: | Banks are in the business of acquiring “financial assets”, mainly in the shape of loans of one sort or another that they extend to their customers and for which they receive interest and the repayment of principal; these they fund with [[liabilities]] — which are usually organised in a “[[capital structure]]” with customer deposits at the top, term loans, [[commercial paper]], senior debt, next, then [[subordinated]] debt, then [[contingent convertible securities]] which may, or may not,<ref>If you are [[Credit Suisse]].</ref> sit just ahead of a thin slice of [[shareholder equity]]: “[[tier 1 common equity]]” which is the cushion between heath, wealth and good fortune over hand, and apocalyptic insolvency on the other. | ||
Now there’s a profound credit asymmetry between financial ''assets'' and financial ''liabilities'', and it works against the bank: on one hand, your assets may decline in value, if debtors cannot repay you, a matter largely outside your control; on the other, your liabilities, as long as you remain a going concern, must be repaid in full and that is that.<ref>It is true some financial “wizards” did try to change that in the run up to the last [[global financial crisis]], with sleight-of-hand accounting called [[debt value adjustment]]s, these people were rightly pelted in the street with cabbage in its aftermath and haven’t been heard from since.</ref> | Now there’s a profound credit asymmetry between financial ''assets'' and financial ''liabilities'', and it works against the bank: on one hand, your assets may decline in value, if debtors cannot repay you, a matter largely outside your control; on the other, your liabilities, as long as you remain a going concern, must be repaid in full and that is that.<ref>It is true some financial “wizards” did try to change that in the run up to the last [[global financial crisis]], with sleight-of-hand accounting called [[debt value adjustment]]s, these people were rightly pelted in the street with cabbage in its aftermath and haven’t been heard from since.</ref> | ||