2. Diversify bank's investment

How we diversify bank's investment.
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1. Minimum 5% - 10% cash portion could be parked in treasury.

This should be a stable currency such as USD, Euro, GBP (exception happened to Brexit), etc. More volatile currency such as CAD, Australian dollars, Russian RUB, Japanese Yen, Mexican Peso, Brazilian Real, etc. could be used with smaller portions.

* Any currency pegged to another currency, wouldn't be a safe currency to park cash.
-> China pegs it Yuan to US dollars. Chinese Yuan is not a market driven currency. This is called a "manipulated" currency, because China fixed its exchange rates with USD very often. Why didn't banks buy USD directly?

Spreading out would help about volatile of a currency as well as avoiding over heat of a currency.

* US didn't like its currency at high valuation, but USD is a safe haven to many money managers and investors out there. Thus they like to park/buy cash in US treasury. This is a fact. If US were in recession, it's likely that other countries would be in recession, too. Therefore USD was better than other currencies.
-> The only exception was "2008 crisis", when US faced issues with US banks and housing collapsed. Investors had fled USD, but they came back later.

* Euro is back up by many European countries, thus it's also a safe currency. ECB had used negative rates to bring down the euro. However ECB forgot the fact that investors would like to park cash in euro, too. EU has a few countries among the top economies around the world including Germany and France. So, euro must be traded high as a fact.

* GBP is a stable currency as its exchange rate was about the same for many decades. Brexit blew it for -10% loss overnight.

* I heard that banks could move their cash into different currency after 3 weeks. This would give banks flexibility to move out of an anticipated trouble, but it didn't make them to become currency traders. They have been allocated portion of their portfolio to invest or trade currency anyway. Cash means to be an emergency source of funds.

2. Lower risk portion, 15%-20%, could be parked in a country bond, e.g.

- "Federal" US bond and State bonds for US banks
- Canadian banks could park in Canada bonds and provincial bonds
- Other country's banks could use similar strategies.

* Municipal bonds are not low risks as municipal city could be bankrupt.

* Of course, banks must be sure that those bonds are in safe ranges, i.e. not too high debts. Credit agency reports could be used as a reference, but not 100% reliable.

* If a country bonds were over bought, banks should be able to buy government bonds of another country as long as it's safe and stable.
-> The proposed bond value during cash out was -1.5% to 1.5% on top of their bond value, i.e. safe bonds.

* The goal of low risk investment was to have a little more ROI and its liquidity during trouble times.

* This allocation on government bonds served as backup cash in case of huge trouble, i.e. unlikely to be used.
-> This would add up with cash to make around 18.5% to 21.5% OR 28.5% to 31.5% in total during cash out depending amount of cash and bonds reserved.
-> Because this is like cash, thus banks shouldn't be forced to buy bonds if bonds were overpriced, i.e. banks could keep cash and wait until bond prices were reasonable.

3. One of portion of medium risk or higher risks than #1 and #2 could be in sector or companies that banks couldn't lose money. Of course the ROI couldn't be high, but quite safe.

4. The only portions of investment that would require "time, research, study, thinking, and guessing" is higher risk or highest risk investment.

* A few bankrupt
* A few triple
* A few double
* Some lose 30%, some win 30%
* Some with "wonderful business with fair price" for 10%

These investment's average should be around 10% to 30% annually.

* Practically nobody had a crystal ball, thus spreading their investment would help to balance or average out risks.
-> If you had a crystal ball, then you would be able to put 100% of your investment in a company, a stock, or a sector.

5. The percentage allocated to banks for investment in a sector could be adjusted over years as nobody knew the magic number. For example,

* Banks are allowed to invest between 20% and 30% of their funds in residential mortgages. But if the residential mortgages were over crowded, the allocated amount could be dropped to 15% - 25%.

* The same strategy would apply to all sectors, i.e. increasing or decreasing as we go.

6. Diversification is a proven strategy in investment industry. Thus banks should be very familiar with this.

* I didn't work for a central bank, bank regulators, or a bank, thus the above numbers were as examples and ideas.

7. Rules on asset allocation is a guideline, thus it should provide flexibility.

- Nobody wanted to over pay anything including bonds and stocks.

- The required fluctuation was -1.5% to +1.5%, thus over paying government's bonds may result in -5% to -1% fluctuation. This is not a good scenario.

8. There should be an allocation for foreign investment, e.g. up to 40%. Sometimes the market in their own country over heated, thus entering another market is a good idea.

* Currently US market is at fair or over value except banking sector. Thus investing in US market at the moment may result in down side correction.
-> since 2008 crisis to 2016-07-31: investors hated banks and current low interest environment, thus bank shares have not been exploded as compared to other sectors in USA.

* Canadian market isn't over value, but housing market correction is coming. Thus having investing during a housing market correction would be a better option.

* In investment world, it's not really patriotic, but investors like to invest in their home land. They're familiar with rules and regulation. It's easier. They'd come back to invest in their home land, if the market is under value.
-> Investors have to make return on investment for their shareholders.

9. By spreading out in many sectors and around the world, banks are unlikely to fail unless banks had invested in all wrong companies, stocks, bonds, etc., which is unlikely.

10. If we applied the above rules, the only concern was the prices of government bonds in the range 15% to 20% portfolio. Regulators must provide flexible rules such as holding more cash in case government bonds were overpriced.

* There are not many government bonds qualified safe with a deviation of 1.5%.

* Other investment should be fine as it include vast fields of playground, i.e. can't inflate all of those.

* October 27, 2017: Rolling back to the days of these notes, banks were criticized by governments and media, because governments had to step in to save banks during crisis. How could banks do business, if they have been forced to answer all kinds of questions and scrutiny?

By diversifying their assets and investment portfolio, their business would be safe. No more bombarding by bank regulators.