When variation margin attacks: Difference between revisions

When variation margin attacks (view source)

Revision as of 21:22, 27 November 2021

52 bytes removed , 27 November 2021

no edit summary

Amwelladmin

Bureaucrats, Interface administrators, Administrators

82,853

edits

@@ Line 38: / Line 38: @@
 ==Banking, in the good old days==
 ===Remember when trusted intermediaries were a thing?===
-*Banks are these trusted intermediaries that make finance available to people who need it to run their businesses.
-*Capital and regulation targeted prudent management of a bank’s balance sheet
-*Client contracts were one-way affair: since banks were lending customers money, there were no material covenants going the other way. Businesses might provide collateral for their lending, in the form of plant and inventory, but did not collateralise in cash so much, seeing as that would be largely to defeat the purpose of borrowing in the first place.
-*On the other side of the banks balance sheet were deposits. Again, no suggestion that the bank offered security for these: it compensates for the enhanced credit exposure over the risk-free rate with a spread over the base rate.
-*Customers who considered them to be over-exposed to as single bank (in the shape of large deposits) simply diversified (or invested in non-cash assets).
-*Note the role of banks here is not to take a proprietary position in the businesses to which they lent, or the investments which those businesses made, but to manage their credit exposure on their assets, ensure their deposits funded the business, and  to make sure the margin between deposits and loans was enough to remain solvent.
 ===Interbank relationships===
 There is, and always has been, a healthy interbank relationship, providing liquidity, custody, making markets, foreign exchange, hedging and providing each other short term funding to help manage their daily operations. These interbank relationships tend to be wide and many-faceted and the terms documenting them tended to be short to non-existent, and bilateral.
 ===The overall vibe===
-The overall vibe of the financial system was of circumspect, self-imposed ''prudence'': institutions, staffed by Captain Mainwarings provided stodgy, unflamboyant services to clients who were grateful to be offered them, and who would produce sureties for their investments.
+The overall vibe of the financial system was one of circumspect, self-imposed ''prudence'': institutions, staffed by Captain Mainwaring-types provided stodgy, unflamboyant services to clients who were grateful to be offered them, and who would produce sureties for their investments.
+The Banks were “trusted intermediaries”  collective and paying interest on deposits that they then on-lent to businesses, allocating capital that make finance available to people who need it to run their businesses.
+Client contracts were one-way affair: since banks were lending customers money, there were no material covenants going the other way. Borrowers might provide collateral for their lending, in the form of security over plant and inventory, (but not cash, seeing as that would be defeat the purpose of borrowing in the first place).
+On the other side of the banks balance sheet were deposits. Again, no suggestion that the bank offered security for these: it compensates for the enhanced credit exposure over the risk-free rate with a spread over the base rate.
+Customers who considered them to be over-exposed to as single bank (in the shape of large deposits) simply diversified (or invested in non-cash assets).
+Note the bank’s role here — obviously — that is [[creditor]]: not to take a proprietary position in the customer or its investments, but to manage the spread between deposits and loans and, above all, to get its money back.
+Broking was really an extension of that.
 The idea here is to set up an idea of a financial services industry with two types of participant: ''intermediaries'' and ''end users''. We have waxed [[Look, I tried|elsewhere]] about the countless ways enterprising  individuals can contrive to interpose themselves into a process that oughtn’t to need ''that’’ much intermediating, but let us, for today’s outing, take it as we find it.