What I said was correct. Cash is a bearer bond, issued by the central bank. Being a sovereign issuer of AUD, in ALL of it's variants, the central bank is in control of the entire banking system.
But that's not what you said is it, you have subtly changed the message. Lets not be dishonest in future, or alternatively wear your mistake with dignity.
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The idea that you would withdraw cash because you didn't trust the banking system is still hilarious. That you would turn your house into a tinderbox by storing said cash in it is double hilarious. You could lose your entire savings and house at the same time in one big toasty BBQ You would be better off buying platinum and storing it in the garage.
Good thing it's nice and humid up your way. Less house fires, although it seems to do something to sensibilities.
I personally pulled about $180K out of me bank accounts 'n had it stashed around tha house in tha run up to 'n during tha GFC - Before Krudly Dudly got tha hint 'n introduced his bank guarantee. (George Bush II had a lot ta do wif him comin' ta his senses - As best as I could made of it - Yunno, a personal phone call ta Stupid [as in Krudly Dudly] late one nite as best I could make of it.)
Anyway, I took about three months ta think it all over/ask meself just how much I trusted tha f***er's guarantee before moving it back inta his potentially shitty banks.
'N some time after doing so I turned up $5K I had stashed in a vacuum cleaner I couldn't even recall stashing there - LOL
Ah, they were heady days alright ...
ahh.. the ravings of a mad man.
Check your cranium, I suspect there is still money stashed in the empty void.
Maybe you should have read it first. Banks borrow from overseas money markets because long money is illiquid in Australia. In a short term liquidity crunch, the RBA could provide as large a short-term liquidity facility as the banks need. In fact, they have one prepped and ready to go.
But that transition would change the price of LONG money, which means re-pricing the entire long end of the yield curve, which certain instruments (like mortgages) are very sensitive to.
But hey, when interest rates go negative, you will probably be on to something with your cash stash strategy.
Oh good lord. Do you even know what CASH is? Take a look at Venezuela or India if you want some insight into the genius of your "strategy".
Sounds like knowing f*** all about what deposits are places one at terrible risk. Likewise for cash.
Sounds like you know just enough to be a danger to yourself.
Maybe you should have read it first. Banks borrow from overseas money markets because long money is illiquid in Australia. In a short term liquidity crunch, the RBA could provide as large a short-term liquidity facility as the banks need. In fact, they have one prepped and ready to go.
But that transition would change the price of LONG money, which means re-pricing the entire long end of the yield curve, which certain instruments (like mortgages) are very sensitive to.
But hey, when interest rates go negative, you will probably be on to something with your cash stash strategy.
If any or all of that woz meant ta impress me wif how incredibly intelligent 'n knowledgeable ya are, it didn't work I'm afraid Jon ...
A Professional Demographer to an amateur demographer:"negative natural increase will never outweigh the positive net migration"
As b_b is fond of saying, the RBA cannot run out of money. If they choose to lend to any bank at any terms in any amount, they can.
This is true, and was the type of thing I meant by "special" RBA action. However, if a bank was genuinely in trouble - say because they have incurred huge losses due to trading activities involving complex derivatives that have just been exposed as worthless, I don't think the RBA would bail them out this easily.
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As to the idea of a deposit run, it seems implausible. Say there are only two banks CBA and NAB, and the following three scenarios in a crisis:
1) 200B of CBA's deposits are withdrawn by nervous nellies and deposited in NAB, and 200B of NABs deposits are withdrawn and deposited in CBA. No liquidity crisis.
2) 200B of CBA's deposits and 200B of NAB's deposits are withdrawn as cheques and put into a sock drawer. CBA and NAB have 400B of contingent liabilities floating around "out there" in sock drawers, but they still have the cash! No liquidity crisis.
3) 400B of CBA's deposits are withdrawn and deposited in NAB. Now NAB has 400B extra liabilities and 400B in non-interest bearing "cash". Big problem for NAB. So either they lend the 400B to CBA, or buy some of CBA's assets, or a combination of both. No liquidity crisis.
On 1) I agree, no problem. On 2), agree - no problem if cheques are not presented, non-issue.
On 3) This would *only* be OK if NAB was willing to lend as per normal to the CBA on the overnight cash market, or were willing to buy their assets etc. However, were this event to actually happen ($400B of deposits suddenly withdrawn from CBA), there would probably be a reason, and that reason would likely have something to do with concerns about CBAs solvency - the same concerns would likely cause other commercial banks to choose NOT to lend to CBA on the overnight market - like what happened in the US during the post Lehman collapse period of the GFC. So if that was the case - and the RBA would clearly be aware that something was very wrong - they would likely step in and take other actions other than just lending to CBA directly any shortfall in funds. I think the most likely outcome would be nationalisation of CBA or some other drastic action. And even if they did lend the funds, every other bank in the system would know the RBA was "propping up" CBA, and that would of course lead to a collapse in their wholesale market borrowing activities at all levels - which would definitely result in a major liquidity problem as well as a regulatory one for them. Bottom line is the run / mass deposit withdrawal would I think still be a BIG problem for CBA in your example.
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So, I am still fairly sure that the wholesale and deposit guarantees were not a liquidity measure or to prevent a "deposit run". Bank runs are from the days when banks issued their own bills.
It was more likely a stability measure to prevent the sudden exit of foreign capital, collapsing the exchange rate, and causing chaos in credit markets as the long end of the curve is repriced to the new market price of risk.
"In Australia, fortunately, we did not experience the severe problems witnessed elsewhere. However, when global markets froze, the Australian banks, like banks right around the world, could not access those markets. And while we had no high-profile depositor runs, we did see a general increase in nervousness by depositors, resulting in a significant lift in the demand for banknotes (Graph 1).[2] Both these issues were ultimately addressed with a public-policy intervention during the peak of the crisis in October 2008. The first was with the government being prepared to guarantee bank wholesale funding for a fee. And the second was an enhancement of depositor protection arrangements through a guarantee of bank deposits of up to $1 million."
"Australian financial institutions remained healthy throughout the global financial crisis and their deposits were guaranteed by the Federal Government. Nevertheless, demand for currency increased abnormally quickly in late 2008, resulting in an additional $5 billion (or 12 per cent) of Australian banknotes on issue by the end of that year. The rise in currency demand began in mid October 2008, around four weeks after the collapse of Lehman Brothers and concurrently with policy responses of the Reserve Bank of Australia (RBA) and the Federal Government. The surge in currency demand did not have any destabilising effect on the banking system – indeed bank deposits also rose during the period. However, the rise in currency demand did raise some issues for the RBA’s banknote distribution operations. Traditional models of currency demand suggest a role for interest rate reductions and the Federal Government stimulus payments to households in explaining the increase in currency holdings. We estimate that these factors can only account for around 20 per cent of the observed increase in currency holdings. The remainder of the rise could be due to an increase in precautionary holdings by people concerned about the liquidity or solvency of financial institutions and by financial institutions as a contingency. This is consistent with the disproportionate rise in demand for high-denomination banknotes at this time."
On 3) This would *only* be OK if NAB was willing to lend as per normal to the CBA on the overnight cash market, or were willing to buy their assets etc. However, were this event to actually happen ($400B of deposits suddenly withdrawn from CBA), there would probably be a reason, and that reason would likely have something to do with concerns about CBAs solvency - the same concerns would likely cause other commercial banks to choose NOT to lend to CBA on the overnight market - like what happened in the US during the post Lehman collapse period of the GFC.
Sure, but Lehman was an investment bank, not an deposit taking institution. APRA has pretty good Chinese wall requirements between the retail and investment arms of domestic banks. We used to run pretty harsh stress tests on the IB side, and the only major risk was credit migration, or a failure to meet the terms of an ISDA. There is not that much prop trading in Australian banks (thank god), mostly market making. The only real risk was for a net exposure to become a gross exposure if the collateral or netting position suddenly turned a vapour. Having said that, I still concede that trading losses could cause solvency issues, which may lead to liquidity issues.
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So if that was the case - and the RBA would clearly be aware that something was very wrong - they would likely step in and take other actions other than just lending to CBA directly any shortfall in funds. I think the most likely outcome would be nationalisation of CBA or some other drastic action. And even if they did lend the funds, every other bank in the system would know the RBA was "propping up" CBA, and that would of course lead to a collapse in their wholesale market borrowing activities at all levels - which would definitely result in a major liquidity problem as well as a regulatory one for them. Bottom line is the run / mass deposit withdrawal would I think still be a BIG problem for CBA in your example.
Well, I agree that it would be chaos. The RBA's overnight facility is essentially bottomless, but every term position would need to be unwound and converted to an O/N position, which would have multiple cascading effects on valuations of just about everything. But it most likely still wouldn't cause a liquidity problem for banks, but may do so for corporates with both short and longer term credit facilities.
Speak when you are angry and you will make the best speech you will ever regret. Ambrose Bierce
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