15 - What is a primary dealer bank?
[Man] Oh, I'm glad you made it. Last time, I didn't...
[Woman] I'm afraid I can't stay. I've got a meeting at the Ministry of Finance. Is that for me? Thanks. What did you want to tell me that you couldn't tell me over the phone?
[Man] The Ministry of… but I thought you worked at the bank.
[Woman] Yes. The bank is a primary dealer.
[Man] Primary dea… Oh well yeah that’s…
[Woman] You don't know what that is?
[Man] Of course I do... Actually, no, I don't.
[Woman] I'll explain. You know how on the news they talk about the national debt of say France, the US or Japan, and how it needs to be reduced? Well, every month, a small part of this debt reaches maturity and has to be renewed, which the Ministry of Finance does by calling on banks called primary dealer banks. These primary dealers then have to find investors interested in buying this debt.
[Man] What kind of investors are we talking about?
[Woman] Pension funds, retirement funds, insurance companies and so on. They have capital to manage and invest it mainly by buying bonds, which essentially means lending to the French government.
[Man] But what does “primary dealer” mean exactly?
[Woman] Well, “primary”, because these banks play a primary role in the government's borrowing process.
[Man] But isn't that very specialized? I mean, can any bank be a primary dealer?
[Woman] No, not just any bank can be a primary dealer. In France, there are only 18.
[Man] Really? Why so few?
[Woman] Banks need to know which of their investors are interested in French debt, which means having a long-standing commercial relationship with them. Once the investors have bought debt, the bank guarantees that it will buy it back if one or more investors want to resell. It's a big commitment.
[Man] So without primary dealers, the government wouldn't be able to borrow money.
[Woman] Yes. You got it. And that's the way it works in most countries.
[Man] Cool. Coming back to us, have you given some thought?
[Woman] Given what some thought?
[Man] You know.
[Woman] Listen, I have to run. And how did you get my number, by the way?
[Man] Well, through my sister-in-law and...
[Woman] OK, I'll call her.
[Man] No, don't! She had nothing to do with it! I might have looked you up on her phone… Hey!