Re:Citi’s $900M Misfire Happened During Software Switch
by mason55 on Thursday August 27, 2020 @01:07PM
(#24295818)
This is also the root of the overnight repo market that everyone was up in arms about awhile ago.
The bank originates a new loan that they think will be profitable. Then they need to come up with the assets to offset that loan on their balance sheet (or at least a small percentage of it).
From a macro perspective you'd expect some banks to have more assets than they need and some to have less (because if I loan Joe money then eventually it will end up back in a bank somewhere, or at least a percentage of it). Each night the banks that need assets borrow from the banks that have assets and pay a small fee.
The bank originates a new loan that they think will be profitable. Then they need to come up with the assets to offset that loan on their balance sheet (or at least a small percentage of it).
From a macro perspective you'd expect some banks to have more assets than they need and some to have less (because if I loan Joe money then eventually it will end up back in a bank somewhere, or at least a percentage of it). Each night the banks that need assets borrow from the banks that have assets and pay a small fee.