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James Kwak from Baseline Scenario writes about "Two cakes for the price of one".

Instead of lending to businesses, they are using any spare cash from the capital reserves built up over the last two years to buy back shares which of course benefits them rather than the wider economy.

it's as if the banks had $15 in capital for $100 in assets because they weren't sure how much the capital requirement would go up, and then the regulator said the capital requirement would be only 10 percent. So they have two options. They can expand the balance sheet up to $150 by borrowing $50 and lending it out (more lending = more growth = more jobs); or they can buy back stock. They're buying back stock — that is, they're taking $5 in cash from the asset side and using it to buy back $5 in stock from the liability side, leaving $95 in assets and $10 in capital – which is the same as saying, "we have more capital than we know what to do with." Capital requirements could be 15 percent (in my simple example) and lending still wouldn't be affected, because at the margin lending isn't constrained by capital.

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  • 285 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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