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It is difficult for me to see how fractional reserve lending could be eliminated given the current level of technology and economical incentives there are for f

It is difficult for me to see how fractional reserve lending could be eliminated given the current level of technology and economical incentives there are for fractional reserve lending. I mean, of course, you could say that regulated financial institutions are not allowed to do fractional reserve banking, but only result of that would be unregulated shadow banking institutions doing the same. (Which, as a side note, is something I would be more than curious to know from cryptocoiners, how they are going to stop fractional reserve banking to flood crypto currency supply, as for sure there is no regulator that is going to stop that.)

brian_cloutier 8y ago
> (Which, as a side note, is something I would be more than curious to know from cryptocoiners, how they are going to stop fractional reserve banking to flood crypto currency supply, as for sure there is no regulator that is going to stop that.) There will for sure be a regulator to stop that. In fact, there are already numerous regulators to stop it. If you want to hold deposits for your customers who happen to be California residents, then you are a bank and will need a banking license from the California Department of Business Oversight. California does not care what currency those deposits are denominated in. I expect this to be true everywhere else in the world, cryptocurrency is not some alternative universe where the old rules won't apply.
- beefield 8y ago
  Financial engineers are quite talented in figuring out ways to create things that look like a duck, swim like a duck, and quack like a duck, but definitely are not ducks in a regulatory sense. And I am not familiar with Californian regulations, but I think there may be some challenges in trying to enforce the regulations if a californian makes a bitcoin deposit to a remote chinese "bank"?
soVeryTired 8y ago
Fractional reserve banking doesn't exist anymore. Banks lend against their loss-absorbing capital, not their reserves. Reserves are just used for inter-bank settlement. Frances Coppola [0] has written fairly extensively on this topic, as has the Bank of England [1] [0] http://www.coppolacomment.com/2017/10/money-creation-in-post-crisis-world.html http://www.coppolacomment.com/2017/10/money-creation-in-post... [1] https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
- beefield 8y ago
  Coppola (and most other people claiming to "reveal" something profound of financial system when they tell that banks do technically not lend deposits forward) is confused in my humble opinion. There is no need for double entry accounting trickery nor loans to create money. All bank needs to do is to say that they owe me money and they have created money at that very moment.[1] Simple as that. And they do create money without lending all the time! It is nothing special. When a bank "pays interest" to your account, do you think there exist some new loan that is needed for that money to exist? Nope. Bank just decides that now it is time to add some more money to your account. That's it. Or when bank pays salaries to the personnel or dividends to the shareholders? Nope. No lending associated whatsoever. Just money added to their bank accounts. (for simplicity's sake, I assume that the stakeholders have their bank accounts in the same bank) [1] Which to me implies that there is not that much interesting happening at that point. I mean, a bank could enter a few centillion dollars to my account, and technically the money would be created. But in practice that is laughable. Nobody in their right mind would imagine a second that the bank would be solvent and actually be able to pay me the money, so in reality that money does not exists (no credit...). So even if the traditional model of banks lending deposits forward is technically even more wrong than the banks create money from double entry accounting trickery, in reality that describes much better what actually economically is happening in the financial industry. But that is just my opinion...
  - soVeryTired 8y ago
    Where are you getting this information from? Surely interest on deposits is accounted for as a funding cost and is paid out of the bank's revenues (same for staff costs). I don't know why you're calling double accounting "trickery". It's literally the way a bank operates. I mean, it's enshrined in law for god's sake. A public company has to publish accounts every year, and the double-entry analysis you see in most discussions of money creation shows where assets are entered on the balance sheet.
    - beefield 8y ago
      > Where are you getting this information from? Mainly my own personal thinking. No other sources. > Surely interest on deposits is accounted for as a funding cost and is paid out of the bank's revenues (same for staff costs). Of course. But before those are paid, they do not (need to) exist anywhere (but in the profit account if you want to take an accounting view) > I don't know why you're calling double accounting "trickery". Because that's what these people claim that double entry accounting is some magic wand that is needed to create money. You could operate a bank without double entry accounting that would not change the economics of the bank operations anyhow. You do not need to have double entry accounting to make a loan nor write an IOU. I Can write you an IOU that says that beefield will pay 10 bucks to the holder of this paper and you could use that as a money to buy stuff at least from me and my mom. Not sure if anyone else would trust that... No lending, no double entry accounting needed.

brian_cloutier 8y ago

> (Which, as a side note, is something I would be more than curious to know from cryptocoiners, how they are going to stop fractional reserve banking to flood crypto currency supply, as for sure there is no regulator that is going to stop that.) There will for sure be a regulator to stop that. In fact, there are already numerous regulators to stop it. If you want to hold deposits for your customers who happen to be California residents, then you are a bank and will need a banking license from the California Department of Business Oversight. California does not care what currency those deposits are denominated in. I expect this to be true everywhere else in the world, cryptocurrency is not some alternative universe where the old rules won't apply.

beefield 8y ago
Financial engineers are quite talented in figuring out ways to create things that look like a duck, swim like a duck, and quack like a duck, but definitely are not ducks in a regulatory sense. And I am not familiar with Californian regulations, but I think there may be some challenges in trying to enforce the regulations if a californian makes a bitcoin deposit to a remote chinese "bank"?

soVeryTired 8y ago

Fractional reserve banking doesn't exist anymore. Banks lend against their loss-absorbing capital, not their reserves. Reserves are just used for inter-bank settlement. Frances Coppola [0] has written fairly extensively on this topic, as has the Bank of England [1] [0] http://www.coppolacomment.com/2017/10/money-creation-in-post-crisis-world.html http://www.coppolacomment.com/2017/10/money-creation-in-post... [1] https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

beefield 8y ago
Coppola (and most other people claiming to "reveal" something profound of financial system when they tell that banks do technically not lend deposits forward) is confused in my humble opinion. There is no need for double entry accounting trickery nor loans to create money. All bank needs to do is to say that they owe me money and they have created money at that very moment.[1] Simple as that. And they do create money without lending all the time! It is nothing special. When a bank "pays interest" to your account, do you think there exist some new loan that is needed for that money to exist? Nope. Bank just decides that now it is time to add some more money to your account. That's it. Or when bank pays salaries to the personnel or dividends to the shareholders? Nope. No lending associated whatsoever. Just money added to their bank accounts. (for simplicity's sake, I assume that the stakeholders have their bank accounts in the same bank) [1] Which to me implies that there is not that much interesting happening at that point. I mean, a bank could enter a few centillion dollars to my account, and technically the money would be created. But in practice that is laughable. Nobody in their right mind would imagine a second that the bank would be solvent and actually be able to pay me the money, so in reality that money does not exists (no credit...). So even if the traditional model of banks lending deposits forward is technically even more wrong than the banks create money from double entry accounting trickery, in reality that describes much better what actually economically is happening in the financial industry. But that is just my opinion...
- soVeryTired 8y ago
  Where are you getting this information from? Surely interest on deposits is accounted for as a funding cost and is paid out of the bank's revenues (same for staff costs). I don't know why you're calling double accounting "trickery". It's literally the way a bank operates. I mean, it's enshrined in law for god's sake. A public company has to publish accounts every year, and the double-entry analysis you see in most discussions of money creation shows where assets are entered on the balance sheet.
  - beefield 8y ago
    > Where are you getting this information from? Mainly my own personal thinking. No other sources. > Surely interest on deposits is accounted for as a funding cost and is paid out of the bank's revenues (same for staff costs). Of course. But before those are paid, they do not (need to) exist anywhere (but in the profit account if you want to take an accounting view) > I don't know why you're calling double accounting "trickery". Because that's what these people claim that double entry accounting is some magic wand that is needed to create money. You could operate a bank without double entry accounting that would not change the economics of the bank operations anyhow. You do not need to have double entry accounting to make a loan nor write an IOU. I Can write you an IOU that says that beefield will pay 10 bucks to the holder of this paper and you could use that as a money to buy stuff at least from me and my mom. Not sure if anyone else would trust that... No lending, no double entry accounting needed.