Is Your Bank Acting Like a HedgeFund?

May 11, 2012 No Comments »
Is Your Bank Acting Like a HedgeFund?

If you bank with Chase, then the answer is likely yes.

Just today a number of congressmen and women demanded additional banking regulations in the wake of Chase Bank disclosing trading losses.

Chase – a commercial bank – has in the eyes of many, and particularly Michigan-Senator, Carl Levin, acted as a hedge fund with consumer deposits and cheap federal capital.

If you’re a deposit investor with Chase Bank, you’ve undoubtedly been a witness to their horrific consumer deposit rates, many of which are barely providing just half a percent in returns. Yet Chase Bank has (surprise) been making risky hedges with these funds.

Another Senator crying afoul on Chase Bank’s latest business practices, Oregon’s Jeff Merkley, had this to say when asked if he had a message for Chase Bank’s CEO, Jamie Dimon; ““Yes. If you want to be the head of a hedge fund, be a hedge fund,” Mr. Merkley said. “Terminate your access to the Fed’s discount window, terminate your access to deposits, and then we have no quarrel.”

He went on to state that current laws provide, “a big enough loophole that a Mack truck could drive right through it,” and a “license pretty much to do anything.”

Breaking Down the Banking Loophole:

1) Lets assume BankVibe started an actual Bank.

2) We then applied for and received FDIC insurance from the federal government. Meaning that we can protect our depositors under this governmental insurance program so that they will get all of their money back (from the FED, not us) if we happen to go belly up.

3) We then start collecting consumer deposits, paying between just 0.50% and 1.00% APY (national average for 12 month CD’s sits at 0.50%, while the national average for 3 year deposits sits at just 1.00% APY).

4) With the money collected from the deposits we then make investments through our subsidiary company that we’re allowed to create thanks to the reformation of the Glass-Steagall Act in 1999.

5) BankVibe then reaps the rewards of higher risk investments while paying only a paltry 0.50 to 1.0 percent in returns to our investors (aka depositors). If we lose depositors’ money from risky maneuvers and go under, the FDIC will foot the bill!

No risk for us!

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