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A while back, a small regional coop bank defaulted here in India and could not pay its depositors. The depositors had to protest and camp outside the bank for s
by spaceman_2020 4y ago
A while back, a small regional coop bank defaulted here in India and could not pay its depositors. The depositors had to protest and camp outside the bank for several days. Most of these were ordinary folks, many retirees, who were just trying to keep their savings in a neighborhood bank.
Of course, since this was a political issue and the depositors were innocent, the government stepped in and promised to make them whole.
While this move was welcomed, even in a country with deeply entrenched socialist values like India, there were quite a few voices asking: "why did you keep your money in a tiny bank like that and not a major national bank?"
I understand that SVB was doing a lot for Silicon Valley, but when it was one of the few (perhaps only) that allowed anyone to open a bank account without visiting the country (it was also a part of Stripe Atlas), one should have asked if they were practicing proper risk management. If no other bank does this, but you do, it does indicate that there's a certain approach to risk in your entire business operations. And that approach can eventually manifest in making some very poor bets without adequate hedging.
- lotsofpulp 4y agoThe question is, now that we have computers and money is just an entry in a database, why are banks even necessary for storing and moving money? The whole small bank and big bank issue is moot. Technology has long solved this problem so the government could roll out a solution where no one ever risks any deposits, no FDIC is needed, and no bailouts are ever needed.
- frankreyes 4y agoThis is the argument for CBDC. the Fed taking over deposits. The issue comes when you want to get a loan or mortgage. How does the Fed know if you're financially stable? How on earth can the Fed know how to centrally decide? In general the answer is: split the savings and investments in two different entities. One entity that saves but has forbidden to invest, and an independent entity that invests.
- lotsofpulp 4y agoIf you want to borrow money, you can go to a lender, just like you do now. Lenders do not have to be banks that take deposits.
- oblio 4y agoWhere do the lenders get their money from?
- lotsofpulp 4y agoDepositors who want to earn interest.
- relaxing 4y agoBut… that’s a bank…
- lotsofpulp 4y agoYes. If you want to invest your money with a chance you will lose it in exchange for earning interest, invest it into a bank savings account. If you just want an electronic money account with which you can send and receive and store electronic funds, and not risk losing it, keep it with the government. And add legislation with it that requires the government to provide everyone with an account, even criminals, and it cannot be closed, and any seizures have to be from court orders, but the ability to transfer/store money electronically remains an inalienable right.
- spiralx 4y agoHe's correct in that you'd get a loan or mortgage from a bank still, but incorrect that banks lend out deposits though - a bank loan directly creates new money, so if everyone was using a CBDC and had their money kept in their digital wallet you would no longer need a bank account for storing money, but the only thing that would change about getting a mortgage is that repayments would come from your wallet, not your bank account.
- em500 4y agoIt's not a technological problem. The Fed doesn't want narrow banks that only only keeps deposits safe and are deliberately blocking their formation. John Cochrane speculated that the Fed is forcing deposits into risk taking lenders in the believe that it makes lending to businesses and consumers cheaper: https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-banks.html https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-ban...