Distributed Economics

All Banks licensed to operate within the United States of America have to file detailed quarterly reports on their lending and deposit status with the Federal Financial Institutions Examinations Council (FFIEC). These are known as banking Call Reports, and since 2001, are available for download, and public examination.

If there’s any kind of guide to reading and understanding them, I’ve yet to find it. Still, it’s amazing what can be done with python scripts, and a little patience.

There are two ways to get call reports – either as a consolidated set of files for all the banks per quarter, or individually per bank. It’s easier to understand call reports by looking at the individual consolidated ones, but for systemic analysis, the consolidated files can’t be beaten. It’s also useful to know that in the consolidated files, the Bulk POR report has the names, addresses and FDIC/IDRSSD numbers for all the Banks, which can otherwise be quite hard to find.

So, taking the Citibank FDIC #27606 call report for December 2001, we can  find the ratio of deposits, reserve and loans – at least, we can with a little decoding.

Deposits are known as liabilities in the alternative universe of Bank accounting. Total liabilities, are RCON2948; Total Equity Capital is RCON3210, and Total loans and leases are RCON2170. The forms aren’t completely consistent. For Wachovia, the RCON3210 field is missing, but RIAD3210 is listed as Total Equity Capital, Total Liabilities come under RCFD3300, Total loans are still under RCON2170 though. So in tabular form:

Then there is the question, which Citibank? For the big banks, there often seem to be several separate listings. There is also Citibank Delaware, Citibank New York State, Citibank Nevada, Citibank (South Dakota), and a couple of others.27606 is Citibank USA, using the form for a Bank with domestic offices only.

Another interesting question, in which field are the reserves? Equity capital is normally used to refer to the capital invested in a firm by its owners. So this would presumably be the capital reserve, which is the money used to found the Bank. It also matches the Tier 1 Capital entry, RCON8274.  Presumably then, the reserve of deposits referred to in textbooks, is not listed separately, but is simply the excess of deposits over loans. For which, for Citibank at least in December 2001, would appear to be  -$109,040,000. Interesting.

Actually, it gets worse further down the form. In RC-R the Regulatory Capital section, where Total Risk Weighted Assets are $2,470,549,000 (RCONA223).

Wachovia’s numbers also seems a little strange, since and at least in 2001, they were somewhat over capitalised. However, they seem to be reporting some kind of change to Equity Capital of $6,819,394,000 and it looks like they spent 2001 merging with First Union, which might explain it.Their Total Assets (loans) really are exactly equal to their Total Liabilities(deposits). I’m afraid most engineers, almost innately, tend to find exact matches like that suspicious as hell.

So from the empirical evidence, it seems that Banks can lend out as much as they have on deposit, and the Equity Capital reserve is in fact, the shareholders capital investment into the Bank, and is completely separate to the money deposited by the customers. Banks are required by the Basel treaties to maintain a minimum leverage ratio between theri Equity Capital and their Loans, which Citibank is within the limits of. (RCON7204-6). Presumably this explains why Citibank can get away with lending more money than it has on deposit, it’s still within its ratio with respect to its equity capital.

All the same, it seems a little strange. So, pausing only to drop this lot into a nice little sqlite database, next time I think we’ll look at the figures for some of the banks that have failed this year, versus some hopefully healthy ones, and also look at the situation across the eight years of data available.

One thing can be said though. The Murray Rothbard claim, that Banks can lend ten times their deposits, is shall we say, not supported by the available data.

©cc

cc Empirical Analysis, Fractional Reserve System, Prologue