me: > > By the way, if a bank owns mortgage-backed securities, does it hold > > loan loss reserves? Are banks allowed to own such securities?
Doug: > Dunno about the reserves, but U.S. banks hold over $900 billion of > them [mortgage-backed securities]. The problem is that with traditional loans, banks hold a lot of loan-loss reserves (as part of bank equity capital -- they're not the same as the reserves that back up deposits). But if mortgage-backed securities are just as insecure (risky) as loans are, and if banks aren't holding LL reserves as insurance against their default, the failure of these assets could be disastrous for banks -- and for the economy as a whole. -- Jim Devine / "We are what we repeatedly do. Excellence, then, is not an act, but a habit." -- Aristotle.
