Reports Accross US, Citi Bank Closing Credit Cards without Warning

[Rajiv]

Re: Reports Accross US, Citi Bank Closing Credit Cards without Warning

Citibank loan/deposit ratio as of May 8th 2007 -- 1.75



they need to get it below 1 -- How is that to be accomplished?

Only by reducing loans and increasing deposits.

Why below 1 -- see The Largest Heist in History

So the credit crunch is not finished yet. You better get used to spending cash after you have earned the money!

[kartius919]

Re: Reports Accross US, Citi Bank Closing Credit Cards without Warning

Maxed out is very good video. Thanks for sharing. Elizabeth Warren is brilliant. Is Itulip almost done with the transcription of her interview?

[AndrewT]

Re: Reports Accross US, Citi Bank Closing Credit Cards without Warning

Rajiv. You are absolutely right! However if you read Pytel's:

Loan to deposit ratio and banks' liquidity

you will realize that this is a necessary condition but not a sufficient condition to fix liquidity shortage.

(Read this Pytel's paragraph:

"As it is a cycle, whereby deposits become loans which become deposits and so on, if loan to deposit ratio is above (or equal) 100%, the higher loans result in deposits that result in even higher loans and so on. Therefore in terms of liquidity if at any one time a ratio of total loans to total deposits is taken (which is higher than one) – per bank, a group of banks or entire financial system - it does not give any idea about the prevailing money multiplier as, unlike when loan to deposit ratio is below 100%, it also depends on a number of deposit – loan cycles and loan to deposit ratio of each of them. Therefore a bank’s CEO or a Minister of Finance does not have an idea about the liquidity based on total loans to total deposits ratio. Perversely, model-wise for the sake of clarity of argument, if there were, say, 20 full cycles with loan to deposit ratio of 117% followed by a full cycle of 0%, then the total loans to total deposits ratio would be below 100% whilst money multiplier would be over 130, i.e. liquidity would be extremely fragile. (It should be noted that whilst deposit – loan cycles do not occur in such a uniform, synchronised, way, the model presented gives an accurate account of how they work and what outcomes they produce in reality.) For example information that a bank reduced loan to deposit ratio from 138% to 129% does not carry information whether its liquidity improved or got worse. If a bank stopped giving loans and started keeping deposits building up liquidity buffer, this would imply that liquidity improved. However if a bank continued to lend with, say, loan to deposit ratio of 105% which could have resulted in overall reduction from 138% to 129% (total loans to total deposits), this would have implied that liquidity actually got worse. As presently the banks have reduced lending heavily, the former rather than latter seems to be the case (but this is a guess) and it is foolish of the government to expect banks to lend more."

It is actually quite scary what's going on.

Citibank loan/deposit ratio as of May 8th 2007 -- 1.75



they need to get it below 1 -- How is that to be accomplished?

Only by reducing loans and increasing deposits.

Why below 1 -- see The Largest Heist in History

So the credit crunch is not finished yet. You better get used to spending cash after you have earned the money!

[Quincy K]

Re: Reports Accross US, Citi Bank Closing Credit Cards without Warning

Yeah, but why should they extend credit to deadbeats who ring up their cards to the max, can barely pay their mortgage and are about to lose their job.

I dont' think the banksters are really doing the cutting! There are just fewer eligible sheep to be shorn. For guys who pay up, there is always credit! For guys who don't appear to be able to pay, yeah, the credit is "cut off" - "oh those dirty banksters" - not quite. They are not offering credit terms to do you a favor - they do it in hopes that you get a little behind and start having to pay interest, but they want you to be able to stay afloat!

It's all fine if they have something they can take away from you (even a house in florida) when you don't pay down the balance every month in full, in this situation, they are happiest if you make minimum payments at loanshark interest rates. That is when people should have been complaining. But nope, many people who have credit cards pay interest to these sharks without any complaint - which to me is very surprising! But if and when you, the customer, compute out to be a financial loser, yeah that's actually risky for the credit card company, so they don't need you anymore as a customer - for real. It makes perfect sense.

They are in it to make money right? We all know this.

Responsible use of credit - learn it and enjoy it.

They have to keep extending credit...to keep the Ponzi going.

Don't you understand this?

[Rajiv]

Re: Reports Accross US, Citi Bank Closing Credit Cards without Warning

See also - On capital requirement v loan to deposit ratio

(This is a technical article justifying the assertion that if banks are lending with loan to deposit ratio above 100% then no capital requirements are going to prevent the financial system collapse.)

The banks are lending with loan to deposit ratio (L/D). Their balance sheets grow at exponential pace adding X*L/D^n at each deposit multiplication cycle, where X is an initial deposit. The value of the balance sheets at some point in time equals the sum of values at each cycle over a number of cycles from initial deposit until this point in time plus the initial deposit.

The regulatory approach is that banks should hold a certain fixed percentage of the value of their balance sheets as a reserve (R).
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[Rajiv]

Re: Reports Accross US, Citi Bank Closing Credit Cards without Warning

Further commentary on that by Pytel - Commentary to an article “Loan to deposit ratio and banks liquidity”

An article "Loan to deposit ratio and banks liquidity" shows inter alia:

- why control over liquidity was lost at all levels (individual banks, regulator, The Treasury) and the crisis and its scale came as a surprise

- why the scale of liquidity depth is very difficult to assess (based on traditionally reliable parameters like total loans to total deposits ratio and money multiplier)

- why banks are not lending and it is rather irresponsible to expect them to do so (this is a statement valid under the current circumstances; if the government took certain appropriate actions then the banks could be in position to start lending on a greater scale again).

As many politicians complain that banks are not lending to good businesses it seems not to be understood that a reason why lending remains severely restricted is not really creditworthiness of borrowers. Any lending deteriorates already fragile banks’ liquidity. Banks look like a rabbit caught in the headlights: if they start lending they deteriorate further their existing fragile liquidity position, and, if they do not, the economy goes down resulting in increased credit defaults and further deterioration of the liquidity position. A classic Catch 22.

Additional problem is that certain market players, who bought default swaps, possibly many times over the underlying credits, have an interest in defaults occurring as it is their way of making profit. This adds to the point expressed that short selling of shares is perverse in free market economy. If this happens on a small scale it does not matter and may be regarded as some kind of economic freedom. However on a macro scale this creates a perverse situation whereby there are huge and influential market players in whose interest is NOT the growth but deterioration of the economy. It appears that the government still did not get a grasp on the complexity of the current crisis.