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The greatest shock to my idea of fairness in the world was when I learned that banks could deposit money in the federal reserve and get a guaranteed by law inte

The greatest shock to my idea of fairness in the world was when I learned that banks could deposit money in the federal reserve and get a guaranteed by law interest rate of 6 percent. Heads, market's good and banks lend money and make money. Tails, market's bad, banks put money in the fed and make money. Not surprised that it is a similar heads-i-win-tails-you-lose situation with IPOs. The House always wins.

tych0 11y ago
Wait, really? Can you share some details?
- littletimmy 11y ago
  https://newrepublic.com/article/116913/federal-reserve-dividends-most-outrageous-handout-banks https://newrepublic.com/article/116913/federal-reserve-divid... Not the best of links, but it explains the issue.
Hansi 11y ago
I'm assuming you mean the discount window rate, it's not locked to 6%: https://www.frbdiscountwindow.org/en/Pages/Discount-Rates/Current-Discount-Rates.aspx https://www.frbdiscountwindow.org/en/Pages/Discount-Rates/Cu...
- littletimmy 11y ago
  No I mean the interest rate on the membership deposit. It is a guaranteed (and outrageous) 6%: https://newrepublic.com/article/116913/federal-reserve-dividends-most-outrageous-handout-banks https://newrepublic.com/article/116913/federal-reserve-divid...
dragontamer 11y ago
That's not how it works. The current rate isn't 6% either. If Banks loan money to the Federal Reserve, they are unable to pull the money out for X number of days. If they need the money now (ie: Liquidity Crisis of 2007), they can go bankrupt despite having a lot of cash stored elsewhere. So no, it isn't a risk free practice. Managing liquidity (ie: loaning money to the public in the form of Home Mortgages or Car Loans, or taking in deposits and depositing it into investments like the Fed baseline rate to make money 6-months or 1-year from now) is the very point of a bank. If you think its easy, you can go ahead and form your own bank.
- dragonwriter 11y ago
  > If you think its easy, you can go ahead and form your own bank. Given regulatory hurdles (which may be well justified by the social consequences of unrestricted banking, but that's beside the point) that's not really a valid challenge. Whether or not its easy to run a bank, its not at all easy to start one, legally.
  - dragontamer 11y ago
    > that's not really a valid challenge The number of small community banks and credit unions in the US is huge. There are over 381 Registered Credit Unions in New York alone. There are easily tens of thousands of small banks across this country. http://www.cuna.org/Research-And-Strategy/Credit-Union-Data-And-Statistics/State-Fact-Sheets/ http://www.cuna.org/Research-And-Strategy/Credit-Union-Data-... No really, if you think its a valid or easy business model, then start your own. Literally tens of thousands of others have already done so.
    - dragonwriter 11y ago
      > The number of small community banks and credit unions in the US is huge. Which is completely irrelevant to the issue of the regulatory difficulty of starting a new one today. > There are easily tens of thousands of small banks across this country. No, there aren't, and the number is dropping over time. http://mercatus.org/publication/small-banks-numbers-2000-2014 http://mercatus.org/publication/small-banks-numbers-2000-201...
    - CyberDildonics 11y ago
      Starting a new bank is much, much more difficult than it was in the past.
- deleted 11y ago
  [deleted]
CyberDildonics 11y ago
I mentioned in a comment that the Federal Reserve wasn't a government agency and got down voted. People don't know about this stuff and when they find out they don't believe it. "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford

tych0 11y ago

Wait, really? Can you share some details?

littletimmy 11y ago
https://newrepublic.com/article/116913/federal-reserve-dividends-most-outrageous-handout-banks https://newrepublic.com/article/116913/federal-reserve-divid... Not the best of links, but it explains the issue.

Hansi 11y ago

I'm assuming you mean the discount window rate, it's not locked to 6%: https://www.frbdiscountwindow.org/en/Pages/Discount-Rates/Current-Discount-Rates.aspx https://www.frbdiscountwindow.org/en/Pages/Discount-Rates/Cu...

littletimmy 11y ago
No I mean the interest rate on the membership deposit. It is a guaranteed (and outrageous) 6%: https://newrepublic.com/article/116913/federal-reserve-dividends-most-outrageous-handout-banks https://newrepublic.com/article/116913/federal-reserve-divid...

dragontamer 11y ago

That's not how it works. The current rate isn't 6% either. If Banks loan money to the Federal Reserve, they are unable to pull the money out for X number of days. If they need the money now (ie: Liquidity Crisis of 2007), they can go bankrupt despite having a lot of cash stored elsewhere. So no, it isn't a risk free practice. Managing liquidity (ie: loaning money to the public in the form of Home Mortgages or Car Loans, or taking in deposits and depositing it into investments like the Fed baseline rate to make money 6-months or 1-year from now) is the very point of a bank. If you think its easy, you can go ahead and form your own bank.

dragonwriter 11y ago
> If you think its easy, you can go ahead and form your own bank. Given regulatory hurdles (which may be well justified by the social consequences of unrestricted banking, but that's beside the point) that's not really a valid challenge. Whether or not its easy to run a bank, its not at all easy to start one, legally.
- dragontamer 11y ago
  > that's not really a valid challenge The number of small community banks and credit unions in the US is huge. There are over 381 Registered Credit Unions in New York alone. There are easily tens of thousands of small banks across this country. http://www.cuna.org/Research-And-Strategy/Credit-Union-Data-And-Statistics/State-Fact-Sheets/ http://www.cuna.org/Research-And-Strategy/Credit-Union-Data-... No really, if you think its a valid or easy business model, then start your own. Literally tens of thousands of others have already done so.
  - dragonwriter 11y ago
    > The number of small community banks and credit unions in the US is huge. Which is completely irrelevant to the issue of the regulatory difficulty of starting a new one today. > There are easily tens of thousands of small banks across this country. No, there aren't, and the number is dropping over time. http://mercatus.org/publication/small-banks-numbers-2000-2014 http://mercatus.org/publication/small-banks-numbers-2000-201...
  - CyberDildonics 11y ago
    Starting a new bank is much, much more difficult than it was in the past.
deleted 11y ago
[deleted]

CyberDildonics 11y ago

I mentioned in a comment that the Federal Reserve wasn't a government agency and got down voted. People don't know about this stuff and when they find out they don't believe it. "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford