how bank loans work, page-14

Hello Hippo567 I talked again to my contact. You get a barrage of data it can be hard as the whole banking game is a bit blurred. I am working to add to my general knowledge here - I want additional detail in layers on each and every aspect of all this mess.

I was mostly wrong on reserves from deposits - deposits cannot be used directly as reserves and yet by another stroke; if the right asset is bought with those deposits then a minor portion of the depositors money can apparently end up as reserves. So partly right too.

You were right on the depositors money buying assets as the banks have them as liabilities and yet go out and buy assets to earn money so they can pay you interest. Loan book also mixed sources of capital so apparently some can be lent out. Mismatch I always thought correct. Got some more detail if you have interest...

With deposits they play 'duration' - deposits taken to buy say USTreasuries. Now they hold USD and in long bonds to play operation twist as Fed buys long end and pushes down the yield - pushes up the underlying bond value. They then bring back capital after selling position after fall in AUD and take profit on the Fx and profit on the bond.

They also play interest rate differential and what ever they like and as you said - maturities do not match. We will make a lot of money playing distressed assets here in Australia as this unfolds. The RBA and Govt have masked a recession with stimulus and now the unemployment phase is kicking in. I have outlined the headwinds facing our banks, things are not as they seem.

Much wider view - it is easy to see why gold is so attractive - the banking crisis shifted to a sovereign and banking crisis - I was across that but still learning the ins and outs of banking. It is fascinating IMO.

CW