If you are in the "Reads Matt Levine" section of people who follow me, you should probably take a look at StoneCastle, which is a fascinating business.https://stonecastle.com/
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Is this, like, a company has "100 million in cash in the bank," but doesn't particularly want to have a nine-figure balance in any particular bank?
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That's one use case for one of their products. Another is "Hiya I'm a discount brokerage with 500,000 customers and ~$2 billion in customer cash. I'd like as much revenue as I can get out of that, but I've got strong liquidity and compliance requirements."
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That sweet nondurbin revenue...
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So the service is “we take your cash and put it in 100 FDIC-insured relatively-high-yield bank accounts”, marketed N different ways right? The product for depositors is risk-free return, the product for lenders is extra cash, and the lenders supply a separate bank account w/FDIC?
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The piece I don’t get yet is why the community banks pay relatively high yields. Supply and demand?
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If this is a thing you find interesting the book “the most fun I never want to have again” talks about it from the community bank side and what happened with brokered deposits during the last bubble pop.
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Nice find! Looks like they're essentially a marketplace for cash. I'd assume the other side of this is corporations with large cash accounts and non-banks who want to earn a return on client deposits (ex. brokerages or money-handlers like Square/Venmo).
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Presumably non-community banks are either big enough to source deals directly or have enough cash from their own customer deposits that they don't need access to this capital source.
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Hmm... I started reading Matt Levine recently from the "back to the bunker" article. I want to understand this, I'll have to revisit in the future though.
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On 2) Independent broker dealers (e.g. LPL) have client cash just like SCHW but no bank to sweep to; Also banks with excess funding and low leverage ratios want to reduce B/S but keep relationships. On 1) more likely to need funding and less restrictions on brokered deposits
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