4 ms·

Who would deposit their money in a bank that wouldn't let them get it back for years?

by twblalock 4y ago

Scoundreller 4y ago
CDs?
- twblalock 4y ago
  CDs are definitely not the same as checking and savings accounts though. Most people don't even have any CDs, and the people who do have them also have accounts where they can withdraw money immediately. I've never seen a bank that only offers CDs. That's probably because such a bank wouldn't survive.
  - Scoundreller 4y ago
    > Most people don't even have any CDs Because the rates suck, but that hasn’t always been the case.
recursivedoubts 4y ago
You are touching on the difference between demand deposits and duration deposits. If you were charged a small nominal fee for your demand deposits, you would likely say "OK, I'll keep a certain amount in my demand deposit account, and then put the stuff I don't need into longer duration deposits, so I can get some interest." This would be the right thing, and that money could be safely loaned out at durations shorter than you deposited. You would then be signalling to the market exactly what the demand is for money over time, and it could respond appropriately. To an extent you do this today: you don't keep all your money in demand deposits, you instead put a lot in the market or whatever. Back in the day, you might have even bought a CD, which is almost exactly what I'm describing, sans the requirement that banks not loan funds they can't guarantee are available for the duration of the loan. So it's not as crazy as it sounds. It's still crazy, but not as crazy as it sounds.
- dev_tty01 4y ago
  CDs are duration deposits, but you can still get the money out minus some fees associated with the early withdrawal. That doesn't help the run on the bank situation.
  - recursivedoubts 4y ago
    So long as the bank has reserves (out of profits) they can offer to buy people out early, according to their own profit and loss calculations. But they can't be compelled to, and they must have that money available to them at the given moment. In this make believe banking system that I am making up. :)
s1artibartfast 4y ago
People do it all the time already, but it is a minor part of banking sector.
- acchow 4y ago
  Minor part of consumer banking. For the financial sector at large, treasuries and bonds make up the vast majority of the market
acchow 4y ago
This is how bond issues work.
ticviking 4y ago
I own a few CDs. They’re not an unusual financial product.
- greenyoda 4y ago
  But the longest maturity for CDs is around 5-10 years, while banks loan out money for 15-30 years for mortgages. And most banks probably have much more money deposited in checking and savings accounts than in CDs.
- twblalock 4y ago
  Yeah but I assume you also have money in an account that lets you withdraw it in less than two years? A bank that only offers CDs or other long-duration deposits would be pretty weird.
  - PeterisP 4y ago
    Well sure, but one could theoretically imagine banks which are prohibited to lend money from their customers' current accounts and only make loans based on their CDs - and one aspect of that is that they'd have to offer much better terms for CDs since they would be in much higher demand.
    - twblalock 4y ago
      > and one aspect of that is that they'd have to offer much better terms for CDs since they would be in much higher demand. Why? CDs are insured by the FDIC. That gives people the same amount of confidence in all CDs no matter what bank they get them from.
      - ashwagary 4y ago
        Well, if they can only lend from funds in the CD pool, how else would they encourage clients to put more money in that pool? Better terms right?

Who would deposit their money in a bank that wouldn't let them get it back for years?

Scoundreller 4y ago

CDs?

twblalock 4y ago
CDs are definitely not the same as checking and savings accounts though. Most people don't even have any CDs, and the people who do have them also have accounts where they can withdraw money immediately. I've never seen a bank that only offers CDs. That's probably because such a bank wouldn't survive.
- Scoundreller 4y ago
  > Most people don't even have any CDs Because the rates suck, but that hasn’t always been the case.

recursivedoubts 4y ago

You are touching on the difference between demand deposits and duration deposits. If you were charged a small nominal fee for your demand deposits, you would likely say "OK, I'll keep a certain amount in my demand deposit account, and then put the stuff I don't need into longer duration deposits, so I can get some interest." This would be the right thing, and that money could be safely loaned out at durations shorter than you deposited. You would then be signalling to the market exactly what the demand is for money over time, and it could respond appropriately. To an extent you do this today: you don't keep all your money in demand deposits, you instead put a lot in the market or whatever. Back in the day, you might have even bought a CD, which is almost exactly what I'm describing, sans the requirement that banks not loan funds they can't guarantee are available for the duration of the loan. So it's not as crazy as it sounds. It's still crazy, but not as crazy as it sounds.

dev_tty01 4y ago
CDs are duration deposits, but you can still get the money out minus some fees associated with the early withdrawal. That doesn't help the run on the bank situation.
- recursivedoubts 4y ago
  So long as the bank has reserves (out of profits) they can offer to buy people out early, according to their own profit and loss calculations. But they can't be compelled to, and they must have that money available to them at the given moment. In this make believe banking system that I am making up. :)

s1artibartfast 4y ago

People do it all the time already, but it is a minor part of banking sector.

acchow 4y ago
Minor part of consumer banking. For the financial sector at large, treasuries and bonds make up the vast majority of the market

acchow 4y ago

This is how bond issues work.

ticviking 4y ago

I own a few CDs. They’re not an unusual financial product.

greenyoda 4y ago
But the longest maturity for CDs is around 5-10 years, while banks loan out money for 15-30 years for mortgages. And most banks probably have much more money deposited in checking and savings accounts than in CDs.
twblalock 4y ago
Yeah but I assume you also have money in an account that lets you withdraw it in less than two years? A bank that only offers CDs or other long-duration deposits would be pretty weird.
- PeterisP 4y ago
  Well sure, but one could theoretically imagine banks which are prohibited to lend money from their customers' current accounts and only make loans based on their CDs - and one aspect of that is that they'd have to offer much better terms for CDs since they would be in much higher demand.
  - twblalock 4y ago
    > and one aspect of that is that they'd have to offer much better terms for CDs since they would be in much higher demand. Why? CDs are insured by the FDIC. That gives people the same amount of confidence in all CDs no matter what bank they get them from.
    - ashwagary 4y ago
      Well, if they can only lend from funds in the CD pool, how else would they encourage clients to put more money in that pool? Better terms right?