re: Where does the money come from when banks loan it out?

I feel another lesson in chess coming on...

Let us have it. Educate us lowly sheeple!

quote:

---

As I understand it from the liberal folks, the banks are all controlled by 5 or 6 old white haired men.

---

That's such a 70s mindset. Everyone knows it's now run by a bank of evil computers.

quote:

---

You're talking about an industry where interest income barely covers cost of funds and operating expenses. Profits are roughly equal to whatever fee and trading income those institutions can generate.

---

Which is why when Glass-Stegall was knocked down, banks rushed to Wall Street. The opportunity for increased trading profits was just too good to pass up.

quote:

---

Banks profit for three very simple reasons intertwined in a very complex animal: volume, leverage, and fees.... and just like the customers they lend money to, leverage amplifies deteriorating financial condition due to losses just as well as it amplifies financial condition due to profits. You're talking about an industry where interest income barely covers cost of funds and operating expenses. Profits are roughly equal to whatever fee and trading income those institutions can generate.

---

I agree. But most bankers aren't very good at this (at least in Georgia... resulting in so many bank closures). One bank goes under, and another bank moves right into the exact same expensive piece of real estate (these banks in Georgia are Taj Majals for some reason).

There are a lot more people looking for a million dollar loan than there are individuals willing to put their hard earnings into a 1% savings vehicle backed by a joke of an FDIC (I have read that FDIC insures that you will be paid back within the next 100 years).

Fees and transaction income have become the difference between successful banks and the failures. There is nothing wrong with that. But by definition, it is profiting from the minor failures and lack of due diligence of the clientele. When the clientele is more savvy, the bank is more likely to go under because of the dependance on this type of revenue.

quote:

---

There are a lot more people looking for a million dollar loan than there are individuals willing to put their hard earnings into a 1% savings vehicle

---

Factually incorrect.

quote:

---

I'd go with asset quality is the difference...

---

You might be right.

But banks are given some protection when they step in to take over another banks troubled assets.
Yet, that does not mean that the new bank at the same location is able to generate a more reasonable revenue even without the troubled assets hanging over them.

quote:

---

But banks are given some protection when they step in to take over another banks troubled assets.

---

Yes, but I was referring to your comment as a whole regarding Georgia banks.

The expenses associated with running a bank are extensive and continue to grow thanks to misplaced regulation that will do very little, if anything, to thwart another crisis. But, you've got to pay to play regardless and it's costly.

That's not the whole story.

There are plenty of lending opportunities out there for banks. However, many banks are still quite risk averse - due to low interest rates, due to overbearing regulators.

Take the overlays that many banks put on top of FHA, Fannie, and Freddie loans. There is no reason for an overlay on a federal guaranteed asset - except banks are scared crapless that either the guarantors or the regulators are going to make them eat loans.

quote:

---

There is no reason for an overlay on a federal guaranteed asset - except banks are scared crapless that either the guarantors or the regulators are going to make them eat loans.

---

That's a pretty big reason to have strict underwriting guidelines (even on top of the minimum requirements).

Most banks make money selling those backed securities. i don't know how much is being paid to them, today... but a long time ago, originators were making a mint.
What can crush that flow of money? Buying back bad assets. Not only is that cash off the books (and mortgages are a lot of cash each), but it is a huge hit to the lending capability (warehouse lines or leveraged assets) for future profitability/business.