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The way any other creditor issues loans? Investors put money together, loan it out at interest to make a profit and cover losses.

by alxmng 4y ago

digitaltrees 4y ago
That would be a fraction of the size of depositor back lending which would significantly reduce capital available for all kinds of uses. The current system is better specifically because it supplies guard rails that incentivize private investors and all savers to lend their money.
- alxmng 4y ago
  The venture capital and stock market are not capitalized with bank deposits, and that comprises the bulk of commercial startup capitalization and investment. What percentage of startup capitalization and investment comes from deposit-backed bank loans? I'd guess not much. None of the tech startups impacted by SVB's insolvency were capitalized by loans from checking deposits. Their deposit accounts were lent out to mostly non-business securities (mortgages and government bonds). Fractional reserve banking always will and always does result in bank runs. The idea of separating deposit and investment banking goes back to the 1930s. It's known as "The Chicago Plan" (full reserve deposit banking). The IMF published a study that estimates no negative impact on economic growth. https://en.wikipedia.org/wiki/Chicago_plan https://en.wikipedia.org/wiki/Chicago_plan https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Chicago-Plan-Revisited-26178 https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The... https://qr.ae/pGQXNx https://qr.ae/pGQXNx
  - digitaltrees 4y ago
    When a company is capitalized that money gets deposited into an operating bank account. Many start ups used SVB, so all of their capital became a deposit at a bank. It doesn’t matter that the original source was a VC firm and wasn’t from other depositors. Because now the company can’t access its capital to pay employees. This has nothing to do with separating deposits from investment activities, no one is alleging that SVB was speculating in stock or risky securities. They were placing deposits grade A securities as any regulatory body would sign off on.

The way any other creditor issues loans? Investors put money together, loan it out at interest to make a profit and cover losses.

by alxmng 4y ago

The way any other creditor issues loans? Investors put money together, loan it out at interest to make a profit and cover losses.

digitaltrees 4y ago

That would be a fraction of the size of depositor back lending which would significantly reduce capital available for all kinds of uses. The current system is better specifically because it supplies guard rails that incentivize private investors and all savers to lend their money.

alxmng 4y ago
The venture capital and stock market are not capitalized with bank deposits, and that comprises the bulk of commercial startup capitalization and investment. What percentage of startup capitalization and investment comes from deposit-backed bank loans? I'd guess not much. None of the tech startups impacted by SVB's insolvency were capitalized by loans from checking deposits. Their deposit accounts were lent out to mostly non-business securities (mortgages and government bonds). Fractional reserve banking always will and always does result in bank runs. The idea of separating deposit and investment banking goes back to the 1930s. It's known as "The Chicago Plan" (full reserve deposit banking). The IMF published a study that estimates no negative impact on economic growth. https://en.wikipedia.org/wiki/Chicago_plan https://en.wikipedia.org/wiki/Chicago_plan https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Chicago-Plan-Revisited-26178 https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The... https://qr.ae/pGQXNx https://qr.ae/pGQXNx
- digitaltrees 4y ago
  When a company is capitalized that money gets deposited into an operating bank account. Many start ups used SVB, so all of their capital became a deposit at a bank. It doesn’t matter that the original source was a VC firm and wasn’t from other depositors. Because now the company can’t access its capital to pay employees. This has nothing to do with separating deposits from investment activities, no one is alleging that SVB was speculating in stock or risky securities. They were placing deposits grade A securities as any regulatory body would sign off on.