Yet Another Value Blog
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15 May 23
Like a lot of the rest of the world, I’ve been thinking about banks a lot recently. Many of the investors I’ve talked to have said “banks are off limits for me.” Perhaps that’s the right approach; banks are somewhat black box-y. They are basically confidence games that take short term money and magically use it to fund long term investments, and right now it appears confidence can disappear from any bank at any time. It really doesn’t matter how good your balance sheet is; if 50% of your deposits pull over night, you’re going to have to fire sale some assets, and when you’re ~10:1 levered (as most banks are), even a small haircut (which you’ll have to take in a fire sale) will lead to the equity being a zero.