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Business idea: take in cash deposits. Hold the cash as paper currency in a vault. Avoid negative interest rates. After you build up enough deposits, start m

Business idea: take in cash deposits. Hold the cash as paper currency in a vault. Avoid negative interest rates. After you build up enough deposits, start making loans to make money. Maybe if you make good loans you could even pay some interest to your depositors. I’ll call it “Bank.”

bserge 5y ago
Banq (Bunq is taken already)
Naga 5y ago
I know you're being funny, but for most of history real (as opposed to nominal) rates of return on cash have been negative. Sure, you wouldn't be paying the bank interest, but you'd be paying for storage, security if you have enough, losses on rodents eating your cash, etc. Positive rates of return are actually quite a new phenomenon.
ketzu 5y ago
You'll still have to fulfil minimal required deposits with the central bank (but my understanding was that they are free of charge). After that, what will you do if you can't make enough money from loans for your employees (including yourself) and your other expenses?
SonicScrub 5y ago
Ok, so how are you making money to sustain your operation? Presumably you are a business, not a charity. Your vault isn't free, neither is the land it sits in, and as you gain more customers your security costs are going to increase. Also your customers are going to want convenient withdrawal and deposit options, so you will need multiple vaults in different locations (plus security measures). Not to mention the overhead you'll need to run this business (accountants, HR, IT, asset managers, etc). Thus there is a degree of scaling to your costs. This is fine though, just subtract these costs from the revenue generated by your investments. Your simplified business model looks something like this: Profit = Investment Returns - Operational Costs - Interest Paid to customers Only you have to have sufficiently liquidity such that your customers can get withdrawals whenever they want. This means your investment pool is going to be conservative, thus limiting your returns. Now what happens when your nation's central bank craters interest rates, thus driving your investment returns down? Oh shit, now the revenue source is drying up. What gives? Profit, or your interest rates? Well profits have to be at minimum high enough to justify all this effort, so looks like the interest rates are going to drop and drop and drop as the cost of money goes down.... Congratulations, you are now in the same place as all those other institutions. Who would have guessed that an identical business model subjected to all the same economic push and pulls would end up at the same destination.
- beambot 5y ago
  Simple... digitize the dollars, e.g. through some crypto token. For every 1x physical dollar on hand, I will create 8x-30x crypto dollars to lend out and earn interest. I shall call this a "fractional reserve" system.
  - Armisael16 5y ago
    > to lend out and earn interest Who are you lending to? That’s the key - there’s a ton of money looking for returns but not enough people looking to borrow.
  - zz865 5y ago
    > For every 1x physical dollar on hand, I will create 8x-30x crypto dollars to lend out and earn interest That's not how fractional reserve works. Banks are money multipliers because loans are deposited again. Eg one person saves $100, someone borrows $95 - then deposits it again, so the bank can make a new loan of $90 etc etc
    - nlitened 5y ago
      As far as I know, that’s not how banks make loans. They don’t lend deposited money, the money they lend is created out of thin air.
      - oblio 5y ago
        No, he's right, that's the theory behind fractional reserve banking. At a 10% bank reserve rate, 10x the monetary base is created.
        spiralx 5y ago
        Except fractional reserve banking is an incorrect model of how banks work, the poster you're replying to is correct, banks create money when they make loans. The Bank of England's guide to money creation makes this distinction clear on the first page, it's worth a read, https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
zz865 5y ago
Regulations require you to buy government bonds, you can't hold much cash. European safe govt bonds all pay negative rates. Plus Europe is awash with cash so its hard to make loans. Just another reason all Euro banks are struggling.
jacquesm 5y ago
Yes, only that doesn't work. You are discounting the influence of regulators and the central bank. What you are proposing would be illegal under the current European financial oversight model.
lamontcg 5y ago
> After you build up enough deposits, start making loans to make money. Downturn hits. Depositors want to withdraw more money than you've kept around. You start trying to delay withdrawals long enough to satisfy them with the upcoming loan payments. Some of those payments start to be late. More people start demanding that you give them all their deposits back. Eventually get arrested, tried and jailed for running an unregulated, uninsured wildcat bank.
- nostrademons 5y ago
  That's when you borrow money from all your competing banks that are offering negative interest rates, pay off your depositors, and profit from the interest.
RandyRanderson 5y ago
Better idea: borrow as much as they'll give you. Get paid for that. Also invest borrowed money in the highest return/largest etf you can find. Note that most of the companies in said ETF are also doing this.
- deleted 5y ago
  [deleted]
neilwilson 5y ago
Small problem with that. Banks don't loan out deposits. Banks create deposits by issuing loans. So to start a Bank you don't need any deposits, and in a negative interest rate environment you don't need to chase them. Deposits backed by 'cash' will automatically come to you in the backfill process (which is how the deposits created by loans can be used to pay people at other banks). That's how negative interest rates stimulate loans.

bserge 5y ago

Banq (Bunq is taken already)

Naga 5y ago

I know you're being funny, but for most of history real (as opposed to nominal) rates of return on cash have been negative. Sure, you wouldn't be paying the bank interest, but you'd be paying for storage, security if you have enough, losses on rodents eating your cash, etc. Positive rates of return are actually quite a new phenomenon.

ketzu 5y ago

You'll still have to fulfil minimal required deposits with the central bank (but my understanding was that they are free of charge). After that, what will you do if you can't make enough money from loans for your employees (including yourself) and your other expenses?

SonicScrub 5y ago

Ok, so how are you making money to sustain your operation? Presumably you are a business, not a charity. Your vault isn't free, neither is the land it sits in, and as you gain more customers your security costs are going to increase. Also your customers are going to want convenient withdrawal and deposit options, so you will need multiple vaults in different locations (plus security measures). Not to mention the overhead you'll need to run this business (accountants, HR, IT, asset managers, etc). Thus there is a degree of scaling to your costs. This is fine though, just subtract these costs from the revenue generated by your investments. Your simplified business model looks something like this: Profit = Investment Returns - Operational Costs - Interest Paid to customers Only you have to have sufficiently liquidity such that your customers can get withdrawals whenever they want. This means your investment pool is going to be conservative, thus limiting your returns. Now what happens when your nation's central bank craters interest rates, thus driving your investment returns down? Oh shit, now the revenue source is drying up. What gives? Profit, or your interest rates? Well profits have to be at minimum high enough to justify all this effort, so looks like the interest rates are going to drop and drop and drop as the cost of money goes down.... Congratulations, you are now in the same place as all those other institutions. Who would have guessed that an identical business model subjected to all the same economic push and pulls would end up at the same destination.

beambot 5y ago
Simple... digitize the dollars, e.g. through some crypto token. For every 1x physical dollar on hand, I will create 8x-30x crypto dollars to lend out and earn interest. I shall call this a "fractional reserve" system.
- Armisael16 5y ago
  > to lend out and earn interest Who are you lending to? That’s the key - there’s a ton of money looking for returns but not enough people looking to borrow.
- zz865 5y ago
  > For every 1x physical dollar on hand, I will create 8x-30x crypto dollars to lend out and earn interest That's not how fractional reserve works. Banks are money multipliers because loans are deposited again. Eg one person saves $100, someone borrows $95 - then deposits it again, so the bank can make a new loan of $90 etc etc
  - nlitened 5y ago
    As far as I know, that’s not how banks make loans. They don’t lend deposited money, the money they lend is created out of thin air.
    - oblio 5y ago
      No, he's right, that's the theory behind fractional reserve banking. At a 10% bank reserve rate, 10x the monetary base is created.
      - spiralx 5y ago
        Except fractional reserve banking is an incorrect model of how banks work, the poster you're replying to is correct, banks create money when they make loans. The Bank of England's guide to money creation makes this distinction clear on the first page, it's worth a read, https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

zz865 5y ago

Regulations require you to buy government bonds, you can't hold much cash. European safe govt bonds all pay negative rates. Plus Europe is awash with cash so its hard to make loans. Just another reason all Euro banks are struggling.

jacquesm 5y ago

Yes, only that doesn't work. You are discounting the influence of regulators and the central bank. What you are proposing would be illegal under the current European financial oversight model.

lamontcg 5y ago

> After you build up enough deposits, start making loans to make money. Downturn hits. Depositors want to withdraw more money than you've kept around. You start trying to delay withdrawals long enough to satisfy them with the upcoming loan payments. Some of those payments start to be late. More people start demanding that you give them all their deposits back. Eventually get arrested, tried and jailed for running an unregulated, uninsured wildcat bank.

nostrademons 5y ago
That's when you borrow money from all your competing banks that are offering negative interest rates, pay off your depositors, and profit from the interest.

RandyRanderson 5y ago

Better idea: borrow as much as they'll give you. Get paid for that. Also invest borrowed money in the highest return/largest etf you can find. Note that most of the companies in said ETF are also doing this.

deleted 5y ago
[deleted]

neilwilson 5y ago

Small problem with that. Banks don't loan out deposits. Banks create deposits by issuing loans. So to start a Bank you don't need any deposits, and in a negative interest rate environment you don't need to chase them. Deposits backed by 'cash' will automatically come to you in the backfill process (which is how the deposits created by loans can be used to pay people at other banks). That's how negative interest rates stimulate loans.