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Banking basics
A recap of a few things you’d think financial professionals ought to know
Life savings.jpg
A monstrous oppressor of the proletariat squirrelling away the sweat and tears of your toil, yesterday
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A big, bad, proletariat-munching behemoth without which the industrial revolution could not have happened and which is therefore an operating cause of your iPhone, you horrid little anti-capitalist ingrate.

Banks can come in all shapes and sizes, every one of which is calculated to make wide-eyed, revolutionary, sociology students cross.

The best[1] kind is an investment bank, but all banks want only to relieve you of your money — and to inflict general suffering on the downtrodden masses who can’t fight back, obviously.

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,[2] 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.[3]

See also


  1. Activate «Irony» mode.
  2. If you are Credit Suisse.
  3. 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 adjustments, these people were rightly pelted in the street with cabbage in its aftermath and haven’t been heard from since.