3 ms·

I sense a little bit of political correctness on his part. I bet his reaction was a few cuss words towards the bank rather than saying it was his fault. I live

I sense a little bit of political correctness on his part. I bet his reaction was a few cuss words towards the bank rather than saying it was his fault. I live in Poland but make money in EUR. Finding out what percentage my bank used to STEAL from transactions left me pissed off for a few hours (and led me to eventually find out about TransferWise--which is what I now use, actually). Even if you ignore the fact that for every 1 EUR I give my bank they're able to loan other customers 10 EUR--which should make it more than enough to give me a free account and wave all fees for any transaction I wish to make--these are a few bits exchanged via computers. They hold all currencies, and move records between 2 accounts in different currencies. There is absolutely no reason to charge 5% for this operation. If you DON'T ignore the fact that 1 EUR I give my bank they're able to loan other customers 10 EUR, they're complete criminals and they're in business only because most people don't care about finding out how banking works.

reitzensteinm 8y ago
The multiplicative effect of fractional reserve doesn't work like that. Assuming a 10% reserve: You give your bank 1 EUR, they can loan out 0.9 EUR. The person receiving the loan spends the 0.9 EUR, which is then placed in the merchant's bank account, and this bank can then loan out 0.81 EUR, etc. A total of 1/0.1 = 10 EUR is the theoretical maximum amount of deposits created by the existence of the original 1 EUR (with 9 EUR in matching liabilities). But your bank doesn't get to lend all of that out and collect interest on it, and they actually can benefit less from lending your money than you could, e.g. on a P2P lending site, where you'd be free to not keep a reserve. That's not to say that the spread between the interest rate the bank pays you and the interest rate they charge for loans isn't extremely large (an order of magnitude in many cases), and overall a great business to be in.
- nkkollaw 8y ago
  I mean, thanks for the more detailed explanation, but it doesn't make it sound any less unethical (to not say "criminal" in a colloquial way).
  - reitzensteinm 8y ago
    Do you believe loaning money in the first place to be unethical? Or just banks loaning out money that has been deposited with them.
    - nkkollaw 8y ago
      I believe charging premium to lend what you don't have to be unethical. Think about loans that ruin people's lives (student loans, for instance), and compound interest on those loans that make them basically unpayable: the fact that they didn't even have that money to lend out in the first place is what I think is unethical.
rahimnathwani 8y ago
"They hold all currencies, and move records between 2 accounts in different currencies." When a bank 'converts' money for a customer, the bank ends up owning more of one currency (and less of another) than before. They may not want the larger exposure and will try to do other transactions in the FX market in order to even things out. This is not costless, but for most currency pairs can be done for less than 0.03% (worst case). So it costs the bank _something_, but much less than the 2%-5% it chsrges. I'm OK with banks making a margin, but not with these charges being hidden or deliberately obfuscated to confuse customers.
- nkkollaw 8y ago
  > When a bank 'converts' money for a customer, the bank ends up owning more of one currency (and less of another) than before. I mean, I guess. The might also even out and I'm sure the popularity of currencies is somewhat predictable. However yes--I agree with you that a fee is fine. I still think fractional banking should be enough for them to want to wave that fee, but 0.05% is fine. 5% hidden as unfavorable exchange rate that few people pay attention to is what's not fine.

reitzensteinm 8y ago

The multiplicative effect of fractional reserve doesn't work like that. Assuming a 10% reserve: You give your bank 1 EUR, they can loan out 0.9 EUR. The person receiving the loan spends the 0.9 EUR, which is then placed in the merchant's bank account, and this bank can then loan out 0.81 EUR, etc. A total of 1/0.1 = 10 EUR is the theoretical maximum amount of deposits created by the existence of the original 1 EUR (with 9 EUR in matching liabilities). But your bank doesn't get to lend all of that out and collect interest on it, and they actually can benefit less from lending your money than you could, e.g. on a P2P lending site, where you'd be free to not keep a reserve. That's not to say that the spread between the interest rate the bank pays you and the interest rate they charge for loans isn't extremely large (an order of magnitude in many cases), and overall a great business to be in.

nkkollaw 8y ago
I mean, thanks for the more detailed explanation, but it doesn't make it sound any less unethical (to not say "criminal" in a colloquial way).
- reitzensteinm 8y ago
  Do you believe loaning money in the first place to be unethical? Or just banks loaning out money that has been deposited with them.
  - nkkollaw 8y ago
    I believe charging premium to lend what you don't have to be unethical. Think about loans that ruin people's lives (student loans, for instance), and compound interest on those loans that make them basically unpayable: the fact that they didn't even have that money to lend out in the first place is what I think is unethical.

rahimnathwani 8y ago

"They hold all currencies, and move records between 2 accounts in different currencies." When a bank 'converts' money for a customer, the bank ends up owning more of one currency (and less of another) than before. They may not want the larger exposure and will try to do other transactions in the FX market in order to even things out. This is not costless, but for most currency pairs can be done for less than 0.03% (worst case). So it costs the bank _something_, but much less than the 2%-5% it chsrges. I'm OK with banks making a margin, but not with these charges being hidden or deliberately obfuscated to confuse customers.

nkkollaw 8y ago
> When a bank 'converts' money for a customer, the bank ends up owning more of one currency (and less of another) than before. I mean, I guess. The might also even out and I'm sure the popularity of currencies is somewhat predictable. However yes--I agree with you that a fee is fine. I still think fractional banking should be enough for them to want to wave that fee, but 0.05% is fine. 5% hidden as unfavorable exchange rate that few people pay attention to is what's not fine.