Bank model weakness

bank model Weakness

Oligarch Mentality

— Approximately 30 global banks control most of corporate hedging — setting policy from ISDA legal agreements, to client approval, hedge approval, financing limits, bank profit margins, and client risk choices.

Zero-Sum Game

— Because Banks set all the terms, clients are always at a disadvantage. And for most hedges there's a winner and a loser — usually the client — whether they know it or not.

Degraded Options

— Bank hedge strategies highlight those options which best fit their risk profile, not the client's. And when Banks do offer a cheaper option, client payoff is reduced as well. Many times they find this out at maturity, rather then at issuance.

Offload Risk To Clients

— Banks like to entice clients with high yield or zero cost strategies — but they come with a significant price — extreme market risk — under certain conditions.

High expenses, high fees

— The Bank operational model is one of high fixed cost — Quant team, Sales team, Trading desk, Analysts, Inventory — and of course market risk. Therefore, they expect to receive high fees, irrespective of hedge risk. After all, bonuses are a direct function of revenue.

No Experts, Just Staff

— Your Bank interface is limited to the corporate sales team. They're not experts. The real experts are the 'prop' traders — putting bank money on the line. The sales team just repeats what they learned in the training program. They think that's good enough for clients.

The conclusion's clear:
It's your cash flow.
It's your problem.
Start taking control.