What does “balance sheet banks” mean in this context?
"The balance sheet for a bank is the list of assets and liabilities that the bank directly is responsible for.  This would be things like loans the bank issues and accounts with the bank. Banks can make both ""balance sheet"" loans, meaning a loan that says on the balance sheet - one the bank gains the profits from but holds the risks for also.  They can also make ""off balance sheet"" loans, meaning they securitize the loan (sell it off, such as the mortgage backed securities). Most major banks, i.e. Chase, Citibank, etc., could be called ""balance sheet"" banks because at least some portion of their lending comes from their balance sheet.  Not 100% by any means, they participate in the security swaps extensively just like everyone does, but they do at least some normal, boring lending just as you would explain a bank to a five year old.  Bank takes in deposits from account holders, loans that money out to people who want to buy homes or start businesses. However, some (particularly smaller) firms don't work this way - they don't take responsibility for the money or the loans.  They instead ""manage assets"" or some similar term. I think of it like the difference between Wal-Mart and a consignment store.  Wal-Mart buys things from its distributors, and sells them, taking the risk (of the item not selling) and the reward (of the profit from selling) to itself.  On the other hand, a consignment store takes on neither: it takes a flat fee to host your items in its store, but takes no risk (you own the items) nor the majority of the profit. In this case, Mischler Financial Group is not a bank per se - they don't have accounts; they manage funds, instead.  Note the following statement on their Services page for example: Mischler Financial Group holds no risk positions and no unwanted inventory of securities, which preserves the integrity of our capital and assures our clients that we will be able to obtain bids and offers for them regardless of adverse market conditions. They're not taking your money and then making their own investments; they're advising you how to invest your money, or they're helping do it for you, but it's your money going out and your risk (and reward)."
"Clearing means processing unsettled transactions. Specifically - all the money transfers between the banks, in this case. Clearing Bank for RMB business means that all RMB transactions will be cleared through that specific bank. If bank A in Hong Kong gets a check drawn on Bank B in Hong Kong, and the check is in RMB - A will go to the BoC with the check and will get the money, and BoC will take the money from B. That obviously requires both A and B have accounts with BoC. ""Sole"" clearing house means there's only one. I.e.: in our example, A and B cannot settle the check through C where they both happen to have accounts, or directly with each other. They MUST utilize the services of BoC." When banks create a loan, it is said they write the debit account out of thin air (liability), balanced by the loan (asset).  When the person who gets the loans spends the money, the bank has to pay it.  If the bank only has 10% reserves of the money it loans, how does the bank pay out it's loans?  Does it borrow the money from the Fed and then pay it back? The same banks that own those loan debts are also heavily invested in the corporations who provide workforce data for educational and job placement to the schools the debtors attend... And the same Corporations who offer jobs to graduates- they can be sure they'll be getting pliable debt slaves right out the gate.  They'll be good little taxpayers, funding the wars for profit contracts and corporate subsidies which are all good for the banks.   People think they are getting education, but they are actually (by-and-large) getting shackles. "&gt;Besides, if banks are so evil, why would I ever do any business with them?  Are you not familiar with the phrase ""a necessary evil""?  You must understand that the major difference between borrowing from an individual and borrowing from a financial institution is that the latter factors the risk of default into its business model.  The bank expects a certain percentage of its borrowers to default and manages its risk accordingly, which is why there are such things as credit scores and variable APRs in the first place.  Your bank doesn't ""trust"" you any further than it could throw you." I wouldn't say 90% but it is a lot. Oracle Financials is also quite big.  Excel is used for reporting.  To give you an idea of how one big organisation does it, the balance sheet is SAP. Transactions are done with Oracle, the two are reconciled and reported via Excel. You must mean the current debt ceiling debacle. The meaning of it is: US government is constantly borrowing money (by issuing treasury bonds) and constantly repaying some of the bonds that come to maturity, and also has other obligations it has to meet by law all the time - such as Social Security checks, bonds interest, federal employees' salaries and pensions, etc. By law, total amount of money that can be borrowed at the same time is capped. That means, there can be situation where the government needs to borrow money to pay, say, interest on existing bonds, but can not, since the limit is reached. Such situation is called a default, since the government promised to pay the interest, but is unable to do so. That does not mean the government has no money at all and will completely collapse or couldn't raise money on the market if it were permitted by law to do so (currently, the market is completely willing to buy the debt issued by US government, and with interest that is not very high, though of course that may change). It also does not mean the economy ceases to function, dollars cease to have value or banks instantly go bankrupt. But if the government breaks its promises to investors, it has various consequences such as raising the costs of borrowing in the future. Breaking promises to other people - like Social Security recipients - would also look bad and probably hurt many of them. Going back to your bank account, most probably nothing would happen to the money you store there. Even if the bank had invested 100% of the money in US treasury bonds (which doesn't really happen) they still can be sold on the open market, even if with some discount in the event of credit rating downgrade, so most probably your account would not be affected. As stated in another answer, even if the fallout of all these calamities causes a bank to fail, there's FDIC and if your money is under insured maximums you'll be getting your money back. But if your bank is one of the big ones, nothing of the sort would happen anyway - as we have seen in the past years, government would do practically anything to not allow any big bank failures. This article is 100% incorrect. The governments main concern is to PREVENT depositors and tax payers from losing funds in the case of bank default.  How?  By having debt holders being forced to converted into equity to create a capital buffer to keep a bank solvent which will help protect depositors and prevent tax payers from having to bail the banks out.  Please ask me more questions on this as I have done a lot of work on this topic as of late. Can someone who understands this part of the business explain what exactly happened and how they benefited? I have read a few articles, and I don't really understand.    I work in a bank, and seeing how some other aspects of the financial crisis were portrayed in the news, I have a feeling the whole story isn't being told. How could this have possibly gone on undetected? "When trying to understand accounting, it's always helpful to reference the balance sheet identity, thus , and debits and credits must balance. In this case, one would So that ""Cash"" is subtracted (credited) from assets, and ""Loans to family members"" is added (debited) to assets. The income identity is treated differently as So, unless if the ""Cash"" and ""Loans to family members"" did not start imbalanced, there was no revenue or expense.  A revenue will be any interest paid.  The expenses will be any costs related to loaning the money such as drafting a contract or any amount defaulted. Assets are not liabilities A liability on the balance sheet is a liability owed by the entity measured, such as a person or a company. The family members in this case are the borrowers, so they are the ones who must increase their liability accounts like so: The lender to family members would not increase liabilities in this case because the lender is not borrowing from the borrower. Debits, credits, and the balance sheet Debits & credits must be equal, or an identity is violated. Debits add to assets and subtract from liabilities (and equity) while credits subtract from assets and add to liabilities (and equity). If a lender were to try to simultaneously subtract cash from assets and add loans to liabilities to book a loan, the operation would look like this This would cause an immediate imbalance because there are no offsetting debits, but more importantly, crediting Loans to family members as a liability would actually mean that the lender owes Loans to family members." "The ""c."" is probably circa, or ""about.""  Regulatory settlements is in blue because it's negative; the amount is in parentheses, which indicates a loss. WB and CB might be wholesale banking and commercial banking? BAU probably means ""business as usual"" or things that don't directly apply to the project. Incremental investment is the additional cash a company puts towards its long-term capital assets. FX is probably foreign exchange." "And the absolutely brilliant punchline: who do these regulators and leaders"" think will be the purchasers of said debt? Why other systemically important, TBTF banks of course! Which means that, in the by now quite familiar ""daisy-chaining"" of counterparties and collateral, once one bank fails, its exposure via collateral, repo and certainly, funding of other bank balance sheets, everything will promptly freeze as risk reprices, a la Lehman bonds.""" Yes, I think you're correct. I think it was more like.  Paul Singer: Pay up on time and in full or I will ruin your credit history so bad you'll never be able to get a loan again.   Argentina: Burn the house, we will call the BRIC bank to re-build. "The ""just accounting"" is how money market works these days. Lets look at this simplified example: The bank creates an asset - loan in the amount of X, secured by a house worth 1.25*X (assuming 20% downpayment). The bank also creates a liability in the amount of X to its depositors, because the money lent was the money first deposited into the bank by someone else (or borrowed by the bank from the Federal Reserve(*), which is, again, a liability). That liability is not secured. Now the person defaults on the loan in the amount of X, but at that time the prices dropped, and the house is now worth 0.8*X. The bank forecloses, sells the house, recovers 80% of the loan, and removes the asset of the loan, creating an asset of cash in the value of 0.8*X. But the liability in the amount of X didn't go anywhere. Bank still has to repay the X amount of money back to its depositors/Feds. The difference? 20% of X in our scenario - that's the bank's loss. (*) Federal Reserve is the US equivalent of a central bank." Fractional reserve banking is all fine and dandy, however allowing banks to use savings accounts and checking accounts for high-risk investments is the real insanity.  Fiat currency is what you're getting at being 'broken' as it is inherently a political tool. &gt;banking practises thrive through deception.  and &gt;A bank is in other words, just moving money from A to B and then making profit out of thin air due to the capitalistic systems nature  and  &gt;they are private govt agencies  I realize these are just snippets, but from other debate threads it seems there is a lot of misinformation about what banks are. I have only taken a few finance classes so I was coming here to see what /r/finance thinks a bank is.   Sorry if I let me own bias show in my post, I wasnt trying to let it. But I still havent seen anyone mention the benefits of credit. It seems most peoples perception of a bank is very simplistic.