The Bank

January 16th, 2013

Neither know that the Director of the Office of my box, who knows – and presumably – that works in a serious institution. Neither does the Chairman of the savings bank, which is only known to have reversed a portion of the money of its investors in a major United States Bank. 2nd comment: globalization has its advantages but also disadvantages, and its dangers. The people of San Quirze do not know that they are taking a risk in United States and when it starts to read that there mortgages are subprime, thinks: crazy do these Americans! Moreover, it is that there are the Basel rules, which require banks around the world to have a minimum Capital in relation to its assets. To oversimplify, the balance sheet of the Bank of Illinois is: active passive money box money provided other banks loans Capital reserves TOTAL X million X million the Basel rules require that the Capital of the Bank is not less than a certain percentage of the asset. Then, if the Bank is asking for money to other banks and giving many credits, the percentage of assets that Bank Capital low and does not meet the guidelines of Basel.

We must invent something new. And that again is called securitization: the Bank of Illinois packages mortgages – prime and subprime – in packages that are called MBS (Mortgage Backed Securities, or obligations guaranteed by mortgages). I.e. where before had 1,000 mortgages loose, inside the account credits granted, now has 10 packages of 100 mortgages each, in which there is everything good (prime) and bad (subprime), as in the vineyard of the Lord. The Bank of Illinois goes and sells quickly those 10 packages: where does the money you get for these packages? You are going to the asset, to the account of money in box, increasing, decreasing by the same amount the account credits granted, which improves the share Capital/loans granted and the balance sheet of the Bank complies with the guidelines of Basel.

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