"Another takeover by the exclusive rich to control the banking system I that good or bad ? Is it a deliberate act to make them fail as the repo system has been drained of resources making it easy to acquire for "nothing" the banks, naturally the depositors, shareholders get nothing or very little, so who are the losers Another example of transfer of wealth from us to them, with the included increase of power"
Banks that fail can be expected either to be kept afloat with government money or to be bought in a way or another by the other banks. However, this time they may end by being bought by a private bank holding company.
Since the object being purchased ARE FAILED BANKS, whose owners for one reason or another are expected to fail to recapitalize, logic tells me that what these private investors, the owners of the bank holding company, seem to be after are BANKING LICENCES, albeit at the price of having to buy some failed institutions, whose fortunes, I suspect, may not take long to turn around. WHY SOME BANKS MAY GET IN DEEP TEROUBLE.
Maturity transformation involves borrowing short to lend long. In other words, banks may borrow for maturities ranging from days to a few months and use that borrowed money to extend long-term loans to its customers, such as for a mortgage or business loan that wouldn’t be due for several years.
One does not need to be an expert to realize that when short term interest rates go up the cost of borrowing for the banks must go up too and that the income being derived from of their LONG-DATED assets may turn out to be insufficient to cover such extra costs.
From the Investopedia.
"Long-dated assets carry greater duration risk. If a holder of long-dated assets employs a liability-matching strategy and interest rates rise, the fixed interest income stream that the holder receives over many years may not cover the long-dated liabilities. For example, banks generally hold long-dated assets such as residential mortgage-backed securities. Banks also have interest-sensitive liabilities, such as demand deposits from savings accounts. Since the income generated by mortgages tends to be steady over the life of the loans, the amount of money the bank receives from mortgages is limited to the rates that prevailed at the time of the loan origination. However, cash outflows from demand deposits are not generally limited and will increase in a rising interest rate environment. The result would be a reduction in net interest margin for the bank and possibly financial distress".
Of course, that the reserve is also true and here one has to say that the expectations are for interest rates to start coming down relatively soon.
In the sixties people were introduced to the study of economics with the saying that even a parrot could become an economist as all that the animal had to learn was how to say supply and demand.
I presume that nowadays all that the parrots have to learn is how to say REPO.
