Interactivebrokers & Citibank

[FanOfFridays]

Quote from def:
in the further event that the federal government did not arrange assistance for the bank, then IB’s own, significant, proprietary capital would be required to be used to guarantee IB’s obligations to our customers.

I just want to clarify that IB is under no contractual obligation to make customers whole out of its own funds in the case of the failure of a bank at which it has deposited customer funds. def, you can correct me if I'm wrong, but I'm a Canadian IB customer with two accounts and if there's a major crisis, I won't be holding my breath for IB's announcement that they're going to use their 'proprietary capital' (a fancy term for 'Peterffy's cash') to pay me back any money that is lost. I read the contracts I signed pretty thoroughly and I was under the impression that IB is under no legal obligation to me if I lose funds as a result of another company's bankruptcy.

I'd like an opinion on whether IB's CIPF membership in Canada means that if their banks went down, we would be compensated to the CIPF maximums.

 

[Port1385]

I guess the only safe haven right now is TD Ameritrade which doesnt use Citibank.

 

[Daal]

Quote from Cutten:

It's pretty simple. Housing had a historic bubble, just like dot.coms in 99-2000. The fall will be the same. Minimum 50% fall in real estate globally. Probably more like 60-80%, as in Japan in 1990-2003.

All that is necessary is for house prices to fall 50-80%. And from a Bayesian perspective, the conditional probability of such a fall, given a prior historic bubble, is closer to 100%, than the 1% you claim.

I disagree. Ken's Rogoff work, historical average of real home price declines for financial/banking crisis is 35%, at less than 35% we got the Argentina depression of 2001, Sweden severe credit crunch of 1991, Malasya/Korea/Thailand during the asian crisis in 97. For more than the avg there is a few names but the worse decline ever is Hong Kong 97, for a total decline of 53%

Real declines as opposed to nominal matters because inflation will help the borrower to stay current by raising his wages(US personal income is up yoy 1.9% roughly matching core CPI even during a recession, 0.4% MoM). If there is widespread deflation that would be worrying but the fed can fix that that they just havent gone all-in yet(afterall the 30's fed was able to beat deflation after the US got off the gold standard)

Lets remember than Japan had a stock market with a PE of 60(I believe) at the top and a massive real estate bubble, their banks got destroyed(since lots of their capital were tied to the stock market) and animal spirits tanked. Yet there was not even a depression(nevermind a great one). Guys like roubini are saying the risk is about 33% that happens in the US. I'm yet to see a credible forecaster calling a great depression, obv I dont consider the austrian guys like faber credible because they are calling for the huge collapse every year(perhaps not faber) plus I just dont agree with their logic

 

[moarla]

Quote from Port1385:

I guess the only safe haven right now is TD Ameritrade which doesnt use Citibank.

wich bank they use? Are they in better shape? Give me answer....
all US banks are f...ed up, so explain me please your advice... PORT blablabla

 

[Daal]

My point in comparing this cycle with past housing cycles is that there is nothing unprecedented about this and massive housing collapses dont lead to great depressions. I feel like jim rogers by saying this but we have had housing/banking busts for decades(some gigantic like in japan) with no great depressions
This one is more global so we should expect more ripple effects though TRADE channels, global capital flows etc thats why I believe monitoring protectionism is crucial.
Depression? sure, almost 1/3 fall in GDP and unemployment of 20% in the US. I lay heavy odds against it

 

[cstfx]

Quote from moarla:

wich bank they use? Are they in better shape? Give me answer....
all US banks are f...ed up, so explain me please your advice... PORT blablabla

Why they use TD Bank Corp of course.

 

[def]

Quote from traderNik:

I just want to clarify that IB is under no contractual obligation to make customers whole out of its own funds in the case of the failure of a bank at which it has deposited customer funds. def, you can correct me if I'm wrong, but I'm a Canadian IB customer with two accounts and if there's a major crisis, I won't be holding my breath for IB's announcement that they're going to use their 'proprietary capital' (a fancy term for 'Peterffy's cash') to pay me back any money that is lost. I read the contracts I signed pretty thoroughly and I was under the impression that IB is under no legal obligation to me if I lose funds as a result of another company's bankruptcy.

I'd like an opinion on whether IB's CIPF membership in Canada means that if their banks went down, we would be compensated to the CIPF maximums.

Read this FAQ: http://individuals.interactivebrokers.com/en/general/education/faqs/safetyFAQ.php?ib_entity=llc it answers some of your questions.

I've been in Asia for longer than I care to remember and no longer know the specifics of US regulations but as IB spreads out it's deposits amongst numerous banks globally the risk of any one bank failing vastly reduces the risk of IB not being able to pay it's clients. IB has the obligation to the client, not the bank. I'd suggest looking at the balance sheets and income statements of your broker and clearing house and go with one, such as IB, that is financially strong.

financial strength and security:
http://individuals.interactivebrokers.com/en/general/about/ibgStrength.php?ib_entity=llc

 

[FanOfFridays]

Quote from def:
Read this FAQ: http://individuals.interactivebrokers.com/en/general/education/faqs/safetyFAQ.php?ib_entity=llc it answers some of your questions.

Hi def, and thanks for the response. I have already read every word of the page you linked me to - I did so before I opened my accounts with IB and I reviewed it agian just now. I would just reiterate that there is nothing in those pages which says anything like this

Quote from def:
in the further event that the federal government did not arrange assistance for the bank, then IB’s own, significant, proprietary capital would be required to be used to guarantee IB’s obligations to our customers.

which suggests that if IB faces massive losses by bank failure, that it will use its own money to make customers whole. In fact the account agreements we sign says the exact opposite - that IB will not be held responsible for customer losses which arise as the result of the failure of any other company. I'm sorry but this statement on your part may be misleading, because it makes the reader think that if there are massive catastrophic failures, IB will will make its customers whole. It will not.

 

[def]

Quote from traderNik:

Hi def, and thanks for the response. I have already read every word of the page you linked me to - I did so before I opened my accounts with IB and I reviewed it agian just now. I would just reiterate that there is nothing in those pages which says anything like this

which suggests that if IB faces massive losses by bank failure, that it will use its own money to make customers whole. In fact the account agreements we sign says the exact opposite - that IB will not be held responsible for customer losses which arise as the result of the failure of any other company. I'm sorry but this statement on your part may be misleading, because it makes the reader think that if there are massive catastrophic failures, IB will will make its customers whole. It will not.

this is from the security FAQ on the site, it explicitly states that IB's capital would be used to make you whole.

How Much Exposure Does IB Have to a Single Bank?
IB spreads its assets in segregated accounts for the benefit of customers across at least six of the largest banks (as of September 2008). IB’s customer segregation account at Citibank is used as the “conduit” account for deposits and withdrawals but funds are then spread across these federally-approved depositories.

It is our belief that the U.S. government would do everything in its power to prevent the failure of any of the major money-center banks with whom IB maintains deposits. In the event that such a bank did fail, and in the further event that the federal government did not arrange assistance for the bank, then IB’s own, significant, proprietary capital would be required to be used to guarantee IB’s obligations to our customers.

 

[FanOfFridays]

Quote from def:

this is from the security FAQ on the site, it explicitly states that IB's capital would be used to make you whole.

"IB’s own, significant, proprietary capital would be required to be used to guarantee IB’s obligations to our customers".

Thanks def, I don't mean to be difficult or to be an IB basher and if you know me, you know I have repeatedly stated that those who bash IB are almost always in the wrong and their losses result from either fat finger errors or laziness/sloppiness. IB is the best option for retail traders.

At the same time, I know that IB looks out for itself first and the language used in the agreements we signed leaves no rrom for doubt that IB will not be responsible for losses incurred by its customers which arise as a result of the failure of other companies.

As we all know, contracts are all about language. In this case, the language "to guarantee IB's obligations to its customers" is the catch. No doubt IB would do this. The question is, does IB have the 'obligation' to refund 100% of the money' that a customer might lose if there was a massive catastrophic failure of multiple banks which hold our money. The answer to that is no.