Is Investopedia right?
Came across one of their articles calling HSBC a BB, just curious if there're many people who think that's right
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It's not a BB to anyone who matters, at least not in the West.
Investopedia is written by contributors. I’ve read an article regarding how banks make loans that was completely wrong, it asserted that banks lend out consumer deposits, which is not true.
I think it’s a good start to learn common terms, or how certain financial instruments or securities work, but important to keep in mind that you might have to consult other sources
I assumed commercial banks use deposits (& other revenue sources) for their loans—enlighten me more
A common misconception most believe is that they think Joe goes to his local bank, deposits $100, then the bank takes that same $100 and loans it out to Jane at 8% while paying Joe 1%. Banks are not loaning out consumer deposits. They can’t. Every single loan made is money that the bank created out of thin air, and as loans are amortized, or paid back, the money is “destroyed”. That’s why to boost a slow economy or fight deflation, central banks will cut rates to encourage borrowers to borrow more, and banks to “create” more money to meet that demand, and central banks do the opposite to take money out of the system.
Deposits matter because under our fractional reserve banking system they determine how much a bank can lend out. The more deposits a bank holds, the more loans it’s legally allowed to make.
HSBC falls into a weird category of foreign balance sheet banks that aren’t boutiques (the boutiques can’t use their balance sheet to lend) but aren’t quite bulge bracket because their stand alone investment banking practices aren’t built out enough. Would put them in the same category as Nomura, Mizuho, etc
If it helps, there are generally multiple types of banks here: the asian banks, the european banks, and the canadian banks.
Asian banks: HSBC, MIzuho Nomura, SMBC
Euro: Soc Gen, Santander (DB and Barclays are euro and considered BBs)
Canadian: BMO, RBC
RBC has a much more built-out IBD than anyone else on this list. If you're considering DB as a BB, then RBC is also one for sure.
Yeah, and even within these there are some pretty known tiers. I think most people recognize Nomura as slightly stronger in IB than Mizuho or MUFG, Santander as a small notch above SocGen or Credit Agricole, etc.
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