A law was made a distant moon ago here in
It's a magnificent place where every loan application is approved, and every loan is paid off. In this banking paradise, capital is not an issue because every eager borrower happily ponies up part of the loan in capital.
It sounds a bit bizarre but that's how conditions are in Camelot.
If you are one of the fortunate CEOs in Camelot, there is no limit to your bank's growth. No matter how much your customers borrow, you can always get more money from your dear uncle, Sam. And Uncle Sam is happy to give you all the money you want because he gets his money tax-free and at a discount.
By law in Camelot there is no competition. None. Your customers cannot go to other banks and other banks cannot poach your customers. And there are no worries about being taken over by a nearby bank or anyone else because that never happens in Camelot.
What is especially nice too is that your shareholders think you're a hero. Why? Because in addition to approving all their loans, you give them a big fat dividend every quarter. You can do that because in Camelot banks like yours pay no taxes to the government. Instead, you pay handsome dividends to your owners. They love you for it. No surprise, your golf handicap has never been lower.
July and August may not be too hot and, occasionally, you get to show up in your bank-provided car for some ribbon-cutting ceremony at an affordable housing unit that your bank played a very minor role in funding. You get a round of applause. Your office is a museum of silver groundbreaking shovels for projects like this.
In short, there's simply not a more congenial spot for bank executives than Camelot.
The only disruption to your charmed life is that once a year you are visited by a bunch of grumpy, pointy-headed people from the Camelot government that ask a lot of questions. But they soon leave so you can return to the good life.
Lately, however, you've been hearing about some disturbing developments coming out of far-off Washington. If true, they may threaten your idyllic existence.
Though the Federal Reserve's stress test scenarios were announced ahead of the string of bank failures this spring, the results will be a significant peek into the health of the banking system.
It seems the boss of those irritating bureaucrats has been reading newspaper reports that all is not well in Camelot. Some of your bank's borrowers have been using Sam's money to do pretty crazy stuff. Stuff like fund a brand-new currency they call "crypto." Others have been using Sam's money to leverage themselves wildly. They have nearly wrecked banking systems outside of Camelot — even a system as far away as Switzerland. Worse yet, some powerful U.S. senators have been expressing concerns, especially since Camelot seems to be in the middle of a full-blown housing crisis and your bank is hardly helping.
"Something must be done before things get out of hand in Washington!" you proclaim to your management team. "I know," says your deputy. "Let's have a meeting of all eleven Camelot bank CEOs and come up with a plan."
You gather the other CEOs at the most expensive golf resort you can find. A plan is hatched. In a nutshell it is, "Circle the wagons." To guard the perimeter, the group hires half a dozen lobbying and PR firms. You hope for the best and, because this strategy has been working for 90 years, there is every reason to think it will work again.
But there is something different this time.
The citizenry of Camelot seems to be a lot more tuned in to what is going on with the banks, a little more restless. Maybe it's that social media thing that everyone talks about. Maybe it's the Global Financial Crisis of a dozen years ago when the greed and stupidity of bankers was exposed.
Whatever, the old tropes that have worked so well before all seem to fall flat. Things like, "Hey, we never lost a dollar on a loan," and "Camelot banks get no government subsidy."
Your regulator is also making ominous noises, such as, "The status quo is not sustainable."
So, you and your fellow CEOs drag out all those silver shovels and the photographs of the ribbon-cuttings hoping this will quell the people and the politicians. The message: "All is well in Camelot if you just leave us alone to do our thing."
It is too early to tell if this tried-and-true strategy will work for Camelot this time. But the cries of the mob from outside the sturdy walls of Camelot are growing louder. You can hear them shouting, "If not this time … when?"
Any similarities between Camelot and the Federal Home Loan banks are purely intentional.
