Why is all of the above important? Because as we have explained repeatedly in the past several weeks, the “excess deposit cash over loans” is nothing more or less than additional prop trading capital, that banks can use as they see fit. The traditional regulatory explanation is that the cash is to be used for safe, responsible investment. Alas, as the JPM CIO debacle taught us, said cash is used for anything but, and is in fact used to fund prop trading operations deep inside these commercial banks.
But don’t take our word for it. Take the word of the Task Force charged with explaining away the 2012 CIO Losses, released yesterday.