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jimace

242 Posts.

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09/07/18

10:41

Post #: 34221858
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Originally posted by ididwork ↑

So even the money in the bank, which one would call 'cash' is not as good as the depositor thinks it is, because, in the end, the bank lends it out to generate interest. So the security of your deposit is only as good as the liquidity of the bank's investments.

All banks are really holding are shares/capital defined by the regulators as 'good as cash', so the Australian government puts a guarantee on deposits up to $250k. But, even then, the governments guarantee is only as good as their investments, as well.

The system seems to set up like a house of cards, entirely dependent on liquidity. I.e. as soon as the liquidity of a so called 'cash like' asset dries up, then so does its so called 'cash like' status, and what some thought was safe is in the bank is now bye bye.

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Thank you. This is a fertile line of thinking.

Government regulation has become for flexible in its definitions of cash - so banks can still technically meet APRA guidelines, while in reality the quality of their liquidity differs from what it used to be.

It'd be fantastic to have an overview of how far down the rabbit hole the financial system is.
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