6 ms·

> Contrary to common belief, most money in the world is not produced by central banks but is instead created by commercial lenders when they lend beyond the dep

by hliyan 8y ago

> Contrary to common belief, most money in the world is not produced by central banks but is instead created by commercial lenders when they lend beyond the deposits they hold for savers. Sounds like an attempt to keep the loan-deposit ratio (LTD) at or below 1, so that the bank is only lending money that it actually holds in the form of deposits. I'm told by a lot of experts that this is a bad idea and it will hurt the entire industry and contract the economy, but I'm wondering if it's possible to put a soft lock (like a semi-fixed-deposit) on portion of a customers deposits and use that to finance lending. As a customer, I personally wouldn't mind being able to put soft locks on parts of my savings in return for a higher interest rate (preferably through an online interface).

pjc50 8y ago
Minimum-duration financial savings products have been a thing for a while, and I can access them easily through my bank's online interface (Halifax)
dantheman 8y ago
Yeah, that's normally called a Certificate of Deposit "CD" and locks in the money for a period of time 6 months, 1 year, 4 years at a certain interest rate. In the US banks offer this through websites.
- kgwgk 8y ago
  Saving accounts work like that in many countries (higher interest rates, limited withdrawals).
  - lazyasciiart 8y ago
    The US has savings accounts with rules like that too.
notahacker 8y ago
I don't think there's much consumer demand to have their money locked up for 25 years like a typical mortgage a bank offers its customers though. Someone's got to do the maturity transformation, and it's not like the economy is safer if that's done by pension funds and/or an aftermarket for mortgage-backed securities instead of the banks actually making the lending decision...
- yayana 8y ago
  I would have a lot of interest in getting my money paid back over 25 years with 7% interest. Getting it paid back with 0.01% is a problem and it is essentially caused by allowing Banks to loan on margin.. The problem I see with this law is that as a Swiss law it can not have the intended result. But globally reforming banking this way would probably be very effective at fixing the absurd state of global economics.
deleted 8y ago
[deleted]
repolfx 8y ago
I'm told by a lot of experts that this is a bad idea That probably means it's a good idea ;) Full reserve banking isn't quite what is being voted on here, but if it were to be implemented it wouldn't be so different to what Switzerland already has. I have a Swiss account with UBS. Interest payments on my accounts are effectively zero. Not quite zero but so close it makes no odds. I am happy about this because the SNB is actually trying to force interest rates negative - like most banks, UBS is shielding me from negative interest rates (i.e. direct confiscation of savings) using its own profit margin. However, the issue remains that I get no yield on my money. Or, no, wait, actually I do, because my banks also offers many different kinds of investment funds with high degrees of liquidity, transparency about what they do, their performance and their different degrees of risk. So I put a big chunk of my money into these sorts of funds (and yes yes, I know, there are better funds out there, I don't only use UBS). I think this approach is better for two reasons: 1. It's always clear how much of my money is effectively risk-free deposits, and how much is "working at risk". 2. It divorces retail banking services from investment services. For instance if I happen to like a banks customer service, e-banking portal, mobile app, credit card offerings or whatever, I can benefit from those, without needing to take it as a bundle with perhaps riskier lending practices. The low risk funds I use are mostly short-medium term loans to Swiss business, but I could invest in mortgage funds if I wanted to. It seems to me that if all banks in Switzerland had to go full reserve, then it'd mean relatively little change for people like me. Some bank customers who don't explicitly invest their money would now have to, if they didn't want to lose yield, but inflation in Switzerland is quite low so I suspect some people would be happy with just knowing their money is where they left it and is going to stay there. Investment isn't for everyone.
- lgbr 8y ago
  > > I'm told by a lot of experts that this is a bad idea > That probably means it's a good idea ;) This is just pure contrarianism. Experts also say it's a bad idea not to have clean drinking water, reliable electricity, and seatbelts in cars. And believe it or not, there is a huge amount of data on what kinds of policy in banking work and what don't, leading experts to conclusions like these. We're not talking about a few naysayers, either. The Swiss National Bank themselves, who will be put in charge of all lending if this is implemented, say this is a bad idea.
ams6110 8y ago
> I personally wouldn't mind being able to put soft locks on parts of my savings in return for a higher interest rate You can do that, it's called a Certificate of Deposit (CD)
jganetsk 8y ago
"but I'm wondering if it's possible to put a soft lock (like a semi-fixed-deposit) on portion of a customers deposits and use that to finance lending" Fractional reserve banking? https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking Aka, the way things already work.
- spiralx 8y ago
  No, because bank lending is not dependent on customer deposits or bank reserves - lending occurs first, then reserve requirements are met afterwards. See for instance this research paper from Standard & Poor's: Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_Me_8_14_13.pdf https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_...

by hliyan 8y ago

pjc50 8y ago

Minimum-duration financial savings products have been a thing for a while, and I can access them easily through my bank's online interface (Halifax)

dantheman 8y ago

Yeah, that's normally called a Certificate of Deposit "CD" and locks in the money for a period of time 6 months, 1 year, 4 years at a certain interest rate. In the US banks offer this through websites.

kgwgk 8y ago
Saving accounts work like that in many countries (higher interest rates, limited withdrawals).
- lazyasciiart 8y ago
  The US has savings accounts with rules like that too.

notahacker 8y ago

I don't think there's much consumer demand to have their money locked up for 25 years like a typical mortgage a bank offers its customers though. Someone's got to do the maturity transformation, and it's not like the economy is safer if that's done by pension funds and/or an aftermarket for mortgage-backed securities instead of the banks actually making the lending decision...

yayana 8y ago
I would have a lot of interest in getting my money paid back over 25 years with 7% interest. Getting it paid back with 0.01% is a problem and it is essentially caused by allowing Banks to loan on margin.. The problem I see with this law is that as a Swiss law it can not have the intended result. But globally reforming banking this way would probably be very effective at fixing the absurd state of global economics.

deleted 8y ago

[deleted]

repolfx 8y ago

I'm told by a lot of experts that this is a bad idea That probably means it's a good idea ;) Full reserve banking isn't quite what is being voted on here, but if it were to be implemented it wouldn't be so different to what Switzerland already has. I have a Swiss account with UBS. Interest payments on my accounts are effectively zero. Not quite zero but so close it makes no odds. I am happy about this because the SNB is actually trying to force interest rates negative - like most banks, UBS is shielding me from negative interest rates (i.e. direct confiscation of savings) using its own profit margin. However, the issue remains that I get no yield on my money. Or, no, wait, actually I do, because my banks also offers many different kinds of investment funds with high degrees of liquidity, transparency about what they do, their performance and their different degrees of risk. So I put a big chunk of my money into these sorts of funds (and yes yes, I know, there are better funds out there, I don't only use UBS). I think this approach is better for two reasons: 1. It's always clear how much of my money is effectively risk-free deposits, and how much is "working at risk". 2. It divorces retail banking services from investment services. For instance if I happen to like a banks customer service, e-banking portal, mobile app, credit card offerings or whatever, I can benefit from those, without needing to take it as a bundle with perhaps riskier lending practices. The low risk funds I use are mostly short-medium term loans to Swiss business, but I could invest in mortgage funds if I wanted to. It seems to me that if all banks in Switzerland had to go full reserve, then it'd mean relatively little change for people like me. Some bank customers who don't explicitly invest their money would now have to, if they didn't want to lose yield, but inflation in Switzerland is quite low so I suspect some people would be happy with just knowing their money is where they left it and is going to stay there. Investment isn't for everyone.

lgbr 8y ago
> > I'm told by a lot of experts that this is a bad idea > That probably means it's a good idea ;) This is just pure contrarianism. Experts also say it's a bad idea not to have clean drinking water, reliable electricity, and seatbelts in cars. And believe it or not, there is a huge amount of data on what kinds of policy in banking work and what don't, leading experts to conclusions like these. We're not talking about a few naysayers, either. The Swiss National Bank themselves, who will be put in charge of all lending if this is implemented, say this is a bad idea.

ams6110 8y ago

> I personally wouldn't mind being able to put soft locks on parts of my savings in return for a higher interest rate You can do that, it's called a Certificate of Deposit (CD)

jganetsk 8y ago

"but I'm wondering if it's possible to put a soft lock (like a semi-fixed-deposit) on portion of a customers deposits and use that to finance lending" Fractional reserve banking? https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking Aka, the way things already work.

spiralx 8y ago
No, because bank lending is not dependent on customer deposits or bank reserves - lending occurs first, then reserve requirements are met afterwards. See for instance this research paper from Standard & Poor's: Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_Me_8_14_13.pdf https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_...