posted on Apr, 17 2008 @ 06:14 AM
reply to post by forsakenwayfarer
I'm not sure why you find my post so amusing, but I'll try to explain what I meant.
The higher a bank's NPL ratio, the greater provision it must make to cover it. This is a legal requirement; as far as I know, it is pretty universal.
It has nothing to do with the funds a bank must pledge to the central reserve in order to retain its operating licence; it is a provision that must be
written onto the bank's books as an operating cost. Hence it directly impacts the profitability of the bank. The bank adjusts its lending rate to
I am aware that interest rates are affected by many factors, primarily by reserve-bank and market rates, but you will have noticed, if you have any
reason at all to think about finance, that there is a spread across (as well as between) lending and borrowing rates that is linked to risk. So banks
that have a lot of high-risk clients will have large NPL portfolios and high rates, whereas banks that specialize in lending to solid citizens will
Every time someone tries to finesse this basic rule of finance, the fewmets strike the windmill. The latest example of this is the subprime crisis,
which has spread throughout the entire financial system precisely because subprime mortgages were bundled together with more secure debt and resold,
with the result that no-one knows where in the global financial system the liability for all those American defaults actually resides.
what I meant. It doesn't seem all that funny to me -- a bit dull, if anything. Perhaps you could explain the joke?