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Banks, Securities Markets, And Risk — Brian Romanchuk

Summary:
Large bank corporations now tend to have both traditional lending divisions as well as securities market divisions. This was not always the case; regulators used to keep financial firms locked to specialisations — this was referred to as “the pillar system” in Canada. However, ongoing deregulation eroded the pillars — I discuss part of the economic logic below. It is possible to find banks that stick to a traditional loan/deposit structure (particularly in the United States, with a highly fragmented banking system), but those banks tend to be smaller.Editorial note: This is possibly the last of my series of articles on the theme “how do banks work?” These articles would end up as a chapter in my banking primer. The “elevator pitch” for my book is that I want to pour cold water on loopy

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Large bank corporations now tend to have both traditional lending divisions as well as securities market divisions. This was not always the case; regulators used to keep financial firms locked to specialisations — this was referred to as “the pillar system” in Canada. However, ongoing deregulation eroded the pillars — I discuss part of the economic logic below. It is possible to find banks that stick to a traditional loan/deposit structure (particularly in the United States, with a highly fragmented banking system), but those banks tend to be smaller.

Editorial note: This is possibly the last of my series of articles on the theme “how do banks work?” These articles would end up as a chapter in my banking primer. The “elevator pitch” for my book is that I want to pour cold water on loopy fractional reserve banking stories — which requires some discussion of how banks operate in the real world. However, I am certainly not aiming to write a manual on how to operate a bank, or even how to be a bank analyst. Instead, the focus is how banks fit into the macroeconomy, which requires some knowledge of the basic strategies banks follow....
Bond Economics
Brian Romanchuk
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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