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> The Narrow Bank would take deposits but not make loans That can't work, not if you scale it up across the industry. The Fed could not continue to pay intere

> The Narrow Bank would take deposits but not make loans That can't work, not if you scale it up across the industry. The Fed could not continue to pay interest even on overnight deposits without it directly turning into inflation. The economy could not function without loans. Alternatively the Fed would have to become the one (and only) lender for commercial (and muni, and...) purposes so that it could make the interest income on those with which to service deposits from these "narrow banks". A narrow bank is essentially free-loading, and politically untenable.

yuhong 8y ago
Yea, I dislike the current debt-based economy for a reason.
- pas 8y ago
  What is that reason? Do you have a better alternative?
  - yuhong 8y ago
    The entire debt-based economy fundamentally depends on debt always increasing and has at least since US got off the gold standard.
konschubert 8y ago
Matt Levine writes about this in his newsletter: https://www.google.de/amp/s/www.bloomberg.com/amp/view/articles/2018-09-06/fed-rejects-bank-for-being-too-safe https://www.google.de/amp/s/www.bloomberg.com/amp/view/artic... BTW, it's a really great newsletter, always entertaining and has been teaching me a lot about the world of finance. His take on the Tesla scandal is hilarious.
- donavanm 8y ago
  Straying pretty far of off topic, but... in the trading house story why not just act as a market maker or counter party? Ignoring the fee structure and leverage the complaint appears to be that they simply took the deposits and did not actually make trades on behalf of the client. In a private exchange or trading house would it not be as effective for the house, or a “partner”, to selective meet the bid/ask based on the client account? Being generally ignorant Ill assume leaking counterparty information would also fall afoul of regulators?
- sah2ed 8y ago
  > His take on the Tesla scandal is hilarious. If you are curious as I was, here is the link: https://www.bloomberg.com/view/articles/2018-08-13/funding-for-elon-musk-s-tesla-buyout-wasn-t-so-secure https://www.bloomberg.com/view/articles/2018-08-13/funding-f...
  - konschubert 8y ago
    That's not the one I meant, he's also talking about Tesla in his newsletter. Probably still worth reading.
ta1234567890 8y ago
If a narrow bank makes money and pays taxes on the money it makes, then how would that be free loading? Also, are you implying the current banking system does not free load from the government?
- pas 8y ago
  It would be free loading in the risk sense. They wouldn't participate in the money creation, wouldn't help the economy assess credit risk, etc. Though I don't see how that would be a problem. If someone wants more yield they have to take on more risk. This bank would essentially become a big vault. If the central bank pays interest then they pay interest, if it doesn't they have to charge for holding the deposit. And there will be always people willing to take out a loan, and they would be able to at other banks.
Rainymood 8y ago
>That can't work, not if you scale it up across the industry. But what if they make it work? A bank doesn't have to rule the world, it can exist in equilibrium, or am I wrong here? >A narrow bank is essentially free-loading, and politically untenable. If they exist and are (barely) profitable, what does it matter that it is politically untenable?
- cryptonector 8y ago
  Freeloading is politically a difficult thing to do at this scale.
pmorici 8y ago
How is it different than what happens now except for the fact the the benefactors of the current system are a relatively small group of banks vs a common citizen? Seems to me that a system that benefited everyone would be more politically tenable than one that benefits a select few.
talltimtom 8y ago
With that line of logic no business would ever work. Shoe shop? No way that would work, if every shop on earth sold shoes no one would be making food and we would all starve! This is one bank that wants to not make loans, I’m sure that will work fine and we’ll still have people selling shoes, making food, and making loans.
- cryptonector 8y ago
  This narrow bank pretends to get interest from the Fed while taking no risk. That's freeloading.

yuhong 8y ago

Yea, I dislike the current debt-based economy for a reason.

pas 8y ago
What is that reason? Do you have a better alternative?
- yuhong 8y ago
  The entire debt-based economy fundamentally depends on debt always increasing and has at least since US got off the gold standard.

konschubert 8y ago

Matt Levine writes about this in his newsletter: https://www.google.de/amp/s/www.bloomberg.com/amp/view/articles/2018-09-06/fed-rejects-bank-for-being-too-safe https://www.google.de/amp/s/www.bloomberg.com/amp/view/artic... BTW, it's a really great newsletter, always entertaining and has been teaching me a lot about the world of finance. His take on the Tesla scandal is hilarious.

donavanm 8y ago
Straying pretty far of off topic, but... in the trading house story why not just act as a market maker or counter party? Ignoring the fee structure and leverage the complaint appears to be that they simply took the deposits and did not actually make trades on behalf of the client. In a private exchange or trading house would it not be as effective for the house, or a “partner”, to selective meet the bid/ask based on the client account? Being generally ignorant Ill assume leaking counterparty information would also fall afoul of regulators?
sah2ed 8y ago
> His take on the Tesla scandal is hilarious. If you are curious as I was, here is the link: https://www.bloomberg.com/view/articles/2018-08-13/funding-for-elon-musk-s-tesla-buyout-wasn-t-so-secure https://www.bloomberg.com/view/articles/2018-08-13/funding-f...
- konschubert 8y ago
  That's not the one I meant, he's also talking about Tesla in his newsletter. Probably still worth reading.

ta1234567890 8y ago

If a narrow bank makes money and pays taxes on the money it makes, then how would that be free loading? Also, are you implying the current banking system does not free load from the government?

pas 8y ago
It would be free loading in the risk sense. They wouldn't participate in the money creation, wouldn't help the economy assess credit risk, etc. Though I don't see how that would be a problem. If someone wants more yield they have to take on more risk. This bank would essentially become a big vault. If the central bank pays interest then they pay interest, if it doesn't they have to charge for holding the deposit. And there will be always people willing to take out a loan, and they would be able to at other banks.

Rainymood 8y ago

>That can't work, not if you scale it up across the industry. But what if they make it work? A bank doesn't have to rule the world, it can exist in equilibrium, or am I wrong here? >A narrow bank is essentially free-loading, and politically untenable. If they exist and are (barely) profitable, what does it matter that it is politically untenable?

cryptonector 8y ago
Freeloading is politically a difficult thing to do at this scale.

pmorici 8y ago

How is it different than what happens now except for the fact the the benefactors of the current system are a relatively small group of banks vs a common citizen? Seems to me that a system that benefited everyone would be more politically tenable than one that benefits a select few.

talltimtom 8y ago

With that line of logic no business would ever work. Shoe shop? No way that would work, if every shop on earth sold shoes no one would be making food and we would all starve! This is one bank that wants to not make loans, I’m sure that will work fine and we’ll still have people selling shoes, making food, and making loans.

cryptonector 8y ago
This narrow bank pretends to get interest from the Fed while taking no risk. That's freeloading.