Coppola Comment

Today, I bring you the sad tale of a crypto lender that promised safety and high returns to its depositors, but whose promises have proved to be as hollow as its name.  Donut Inc., a self-proclaimed DeFi" lender, has a "Proof of Reserves" section on its website . This is supposed to reassure customers that their deposits are matched one for one by the platform's liquid assets. I am firmly of the opinion that "Proof of Reserves" statements prove nothing without a corresponding statement of liabilities, since deposits aren't the only form of liability, and encumbered assets can't back deposits. But in this case, the "Proof of Reserves" is worse than useless. It is actually fiction. And it conceals a truly dreadful situation for Donut's customers.   As of today, this is what the "Proof of Reserves" says:  By itself, this doesn't prove anything at all. It's just an unsupported statement of what the company calls "ass...

The crypto lender Celsius has filed for Chapter 11 bankruptcy. This should come as a surprise to absolutely no-one, though the grief and pain on Twitter and Reddit suggests that quite a few "Celsians" didn't want to believe what was staring them in the face. Celsius suspended withdrawals nearly a month ago. So far, every crypto lender that has suspended withdrawals has turned out to be insolvent. There was no reason to suppose that Celsius would be different.   Celsius's bankruptcy filing says the company has assets of $1 - 10 bn and a similar quantity of liabilities:  This doesn't tell us much about the extent of the company's insolvency. But rumours have been circulating of a $2bn hole in its balance sheet. In May,  according to Coindesk , the company said it had $12bn of what Celsius calls "customer assets" and Coindesk calls "assets under management", and $8bn lent out to clients. So "assets under management" seem to have fal...

Banks are complaining. "Negative interest rates hurt our margins," they moan. Here's Commerzbank, for example, in its recent results announcement (my emphasis) : Mittelstandsbank attained a solid result in a challenging market environment. The operating profit declined in the 2015 financial year to EUR 1,062 million (2014: EUR 1,224 million), yet remains at a high level. The fourth quarter accounted for EUR 212 million (Q4 2014: EUR 251 million). The full year revenues before loan loss provisions declined to EUR 2.7 billion (2014: EUR 2.9 billion). This development is due in particular to the downturn in deposit transactions, which was driven by the negative level of interest rates on the market as well as the depreciation of a shareholding.  And here is Danske Bank's CFO Heinrik Ramlau-Hansen, quoted in Bloomberg : “There are considerable costs associated with negative rates. In 2015 alone, narrowing deposit margins resulted in a cost of more than 2 billi...

At the ICAEW's conference "Do Banks Work?" last week, there was a fascinating interchange between Ian Gorham of Hargreaves Lansdowne and RBS's Ross McEwan. Apparently RBS had refused a large deposit from Hargreaves Lansdowne, to the irritation of the asset manager. "There is a problem placing client money", said Gorham. And he went on: "Banks don't need people's savings, because they now have much more capital to support lending. This means that savers receive much lower interest rates on deposits. For an ageing society, this is a problem".  This is a variant on the "banks don't need savings because they are awash with cash due to QE" meme. It does at least have the merit of understanding the structure of a balance sheet - for the same assets, if you have more equity you need less debt. But the WHOLE POINT of all the regulatory reforms of the last seven years was to force banks to deleverage - permanently. The inevitabl...

Me, at Forbes . No, banks don't lend out reserves. They don't lend out deposits, either. And excess reserves due to QE don't "crowd out lending". We are not "paying banks not to lend". With sincere thanks to Sober Look, whose work I love. Sadly he did get this one wrong. But he's certainly not the only one.