Chris Aliotta and Ken Greene discuss banking complexities, including the carry trade, fractional banking, and cryptocurrencies. Chris, with his extensive banking experience, explains that deposits are considered liabilities for banks and details the strategies banks employ to keep money perpetually earning interest. He also elaborates on the industry’s risk issues concerning interest rates and liquidity. Chris shares about the Silicon Valley Bank’s significant losses due to their failure in hedging interest rate risks, advises spreading money over several institutions for security purposes and explains an inverted yield curve’s ramifications.

 

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Episode Highlights

  • The differences between commercial banking and investment banking
  • Role of the Federal Reserve in providing liquidity backup for banks
  • Cases when banks become insolvent
  • The concept of “liquidity risk”
  • Silicon Valley Bank’s large-scale interest rate exposure
  • A good way to measure the safety of a bank as an individual depositor
  • Short-term rates influence what banks can lend to each other
  • The impact of short-term rates on the economy

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