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As seen on SN: https://stacker.news/items/49651 https://stacker.news/items/49651 Are you familiar with Narrow Banking? If not, grab a coffee, sit down with m
by janandonly 4y ago
As seen on SN: https://stacker.news/items/49651 https://stacker.news/items/49651
Are you familiar with Narrow Banking? If not, grab a coffee, sit down with me and get ready to leave the room more pissed off with the Fed that you were before coming in.
You are most probably familiar with the Fed's interest rate. When the rate is positive (which used to be the normal thing until recently), banks can safely store their own cash at the Fed and earn a return determined by the interest rate.
But you can't do that. You can't simply deposit your money at the Fed and get a nice return with the most secure entity in the US. Only selected banks can do it. As George Carlin said, "It's a big club, and you ain't in it".
The issue is infuriating, right? Why the heck can they do it but we, simple mortals, can't? This sparked the idea of The Narrow Bank, and it's service proposal, which was dubbed Narrow Banking. The idea of this bank was very simple: to provide you access to the same deal banks are getting. You would deposit your money in the Narrow Bank. They, in turn, would deposit it at the Fed to earn the interest rate. That would be paid back to you, minus a tiny service fee. End of story.
It sounds like a great deal, doesn't it? From a safety point of view, it's unbeatable. The Fed is the lender of last resort, so there is nothing safer than having your money there. It is quite a difference from depositing your money in a regular bank that gets involved in all sort of complex and risky financial operations to earn more. Plus, you earn interests. There are strong arguments to support the idea that a bank going the narrow way would have plenty of customers and business going on.
The Narrow Bank asked to open an account at the Fed to start operating. The Fed rejected their application. The reason? They fear it would take away funds from regular banks. The Fed is literally forcing you to take risk by working with regular banks and preventing you from accessing the safe accounts it does offer to them. Remember: it's a big club, and you ain't in it.
I'll leave some links here for you to read and get more pissed off.
https://www.tnbusa.com/
https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190306a.htm
https://en.wikipedia.org/wiki/Full-reserve_banking
https://www.econlib.org/why-does-the-fed-oppose-narrow-banking/
https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction
- astrange 4y ago> It is quite a difference from depositing your money in a regular bank that gets involved in all sort of complex and risky financial operations to earn more. It isn't different at all. That's what FDIC is for. He should've tried saying something about checking account fees.
- notahacker 4y agoYup. The point of the Fed is to ensure consumers can stick their money in banks without being experts in the banks' financial position themselves From the point of view of the Fed, it is different though; the reason it offers banks special privileges like banking licences, deposit window lending access and [only recently, not uncontroversially] interest on reserves is because they perform complex and risky operations like lending businesses and homebuyers money the economy needs. If they didn't do this, the Fed wouldn't have come into existence, never mind having agreed to pay interest on reserves banks hold so it could maintain a positive interest rate after flooding the system with reserves with QE. So there isn't an obvious imperative for the Fed to extend privileges it designed for lending institutions to an institution designed with the explicit intention of not performing that function, and simply earning a risk free margin on interest from the Fed. It's not too different to the situation where its difficult to register for charity tax breaks if the purpose of your organisation is in fact, not charitable.
- tialaramex 4y ago> It's not too different to the situation where its difficult to register for charity tax breaks if the purpose of your organisation is in fact, not charitable. Not really in the US. Just say you're a Church. Especially with the current US Supreme Court.
- PopAlongKid 4y agoThis is correct. The IRS has a list at its web site[0] of all the charities where you can get a tax deduction for making a donation -- except churches, which they do not list. Church charities are given much less scrutiny before allowing deductions. The law also makes it extra hard for the IRS to audit the qualifications of churches to be treated as exempt charities for tax purposes.[1] [0]https://www.irs.gov/charities-non-profits/contributors/other-eligible-donees https://www.irs.gov/charities-non-profits/contributors/other... [1]https://www.irs.gov/charities-non-profits/churches-religious-organizations/special-rules-limiting-irs-authority-to-audit-a-church https://www.irs.gov/charities-non-profits/churches-religious...