Well that’s a big scary chart. Zerohedge pulled numbers on the biggest 25 banks in and it’s anything but reassuring:
With 9.283 Trillion in depositor funds, it would take only a .002% net shortfall in the banking system to completely exhaust the fund. Let’s assume the banks want to donate 10 years worth of contribution to the fund all at once, right now. That 145 billion would cover a 0.015% devaluation
So far we’ve only talked about the tiny blue bar and the little green bar. The big red bar is another animal entirely, and it’s time we addressed him.
In theory, funds deposited with a broker or in a bank are still your money. In practice, this is not really the case.
Both Knight Capital and MF Global have been caught with their hands in the customer cookie jar after they grabbed whatever funds they could to keep operating for just another day. In the case of MF Global it was a large burst right at the end, but at Knight Capital this was a systemic practice for years.
The problem, as Karl Denninger likes to say, is excessive leverage. In a low interest environment where bailouts are the norm for the largest institutions, there really is no reason to not bet big because if the screw-up is large enough, there’s always rescue waiting.
That scary red bar is the collected debts of those 25 largest banks, and it totals almost 300 trillion dollars, or about 32x total deposits.
I think the chart and numbers say it better than I ever could.
People still have no idea about this. Zero.