So my understanding is that a commercial bank is basically an institution that takes in deposits and lends them out to various businesses, and the firm’s shareholders have a given amount of equity in the business. Note I’m not talking about investment banks, S&T etc, just normal retail banking.
In that regard, isn’t a bank then essentially a leveraged fixed income investment vehicle? Furthermore should it be different from a leveraged fixed income CEF except for the fact that it needs to have perpetual liquidity rather than once a day like a MF?
Now the interest rates on deposits is really low, even for CD’s as well giving banks a really low cost of borrowing, so even if you invest deposits in safe securities with a decent spread over the cost, with the great amount of implied leverage that banks have, you could get epic returns right?
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