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I feel like we're missing a key part of banking infrastructure: somewhere to just park cash. Start-ups who raise a Series A aren't looking to earn 1% on it - i

• andrewmcwatters 4y ago
  > Sure, in the old days when money was physical and there were costs involved in storing it and transporting it that makes sense. ??? This never stopped being the case. Banks receive deposits and make loans. They are core pieces of modern banking. They play a role in increasing the monetary supply through debt servicing.
• HDThoreaun 4y ago
  The government doesn't want you to "just park cash" because it makes monetary policy difficult and loans more expensive. Predictable and cheap credit is an necessary part of a functioning modern economy so the Fed incentivizes(forces) banks to use deposits to make loans.
• andy_ppp 4y ago
  > I feel like we're missing a key part of banking infrastructure: somewhere to just park cash. We're going to need a bigger mattress...
• ghiculescu 4y ago
  Don’t read this: https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san... It will make you angry.
  • Eupraxias 4y ago
    Great read. What conclusions should we draw? What should we do, if "money is no longer money"? It seems like most normal people operate as though money... is money. What should change in the way most normal people do what they do with... whatever it's called now?
    • toomuchtodo 4y ago
      Sign up with a brokerage. Use their cash management account. Confirm its FDIC limits (many cover $1M+ with sweep functionality). If you exceed those limits, consider investing excess cash or cash equivalents in treasuries or money market funds that solely hold short dated government backed securities. This is what a Narrow Bank would do with demand deposits. Treasuries are backed by the Fed and the full faith and credit of the US gov; they are considered risk free. Tada! You have replicated narrow bank functionality. None of us have enough pull to change Fed fractional reserve and banking regulatory policy unfortunately. If you can't change the wind, adjust your sails. If you don't mind your deposits being exposed to fractional reserve lending and FDIC insurance, CDARS: https://www.intrafinetworkdeposits.com/ https://www.intrafinetworkdeposits.com/ To my knowledge, it can provide at least $50M in FDIC coverage with sweeps under the hood, although someone on HN mentioned the other day the limit might be more. Ask your financial services institution what their limit is. (not investing advice, educational purposes only)
      • michaelt 4y ago
        > Tada! You have replicated narrow bank functionality. Brokerages will issue checks and debit cards now?
        • prottog 4y ago
• dilyevsky 4y ago
  Our HOA’s noname bank has a cash deposit sweep where they automatically loadbalance reserve cash between many banks so it stays under fdic limit. Done that for years. But what do i know I’m just an hoa board member not a unicorn startup cfo ¯\_(ツ)_/¯
  • cduzz 4y ago
    You sure about that? If you have an account with noname for $3,000k and noname has 12 accounts with localcorp1-localcorp12 each of $250k -- and noname goes poof, what happens? I think, according to the preSVB rules, you get $250k from FDIC and then get a very strong claim to $2,750k from the rest of noname's assets (if no BigBank steps in to buy the part of noname you're connected to). https://www.fdic.gov/consumers/banking/facts/priority.html https://www.fdic.gov/consumers/banking/facts/priority.html You'll (probably) get your money back, but after how much time?
    • dilyevsky 4y ago
      When I look at acc statement it shows a list of completely different banks each with <250K. If our bank goes bust I presume we get our first 250K that are sitting in the bank itself as soon as FDIC takes over which is enough for operations and will need to contact other banks for our money. It's more like a brokerage account than a regular deposit.
      • cduzz 4y ago
        I'd give those other banks a call and ask. Also, per FDIC rules, the 250k is per party attached to the account, so at least for a married couple it seems to be $500k per account. But hey, I'm sure it'll all be fine and we won't need to worry about the fine print.
        • dragonwriter 4y ago
          > Also, per FDIC rules, the 250k is per party attached to the account, so at least for a married couple it seems to be $500k per account. Its per owner per account class, but what constitutes an owner varies by account class, and, IIRC, many class by definition have a single owner. But, yeah, you can double your coverage in simple directly-owned accounts as a married couple by splitting funds between maxed out single accounts ($250K) for each party and a maxed out joint account ($500K) for a total of $1M in coverage, because single and joint accounts are separate categories.
• dgacmu 4y ago
  Sure they can. You cycle it through very short term treasuries - weekly buys of 4 week t-bills if you really want to be conservative about your cash availability. And if even that is too spicy for you, buy shorter-out t-bills on the market to keep your average maturity lower. (This mirrors some of the primary strategies used by money market funds, but a startup is in a better position because they can probably accurately forecast their cash needs a week or a month out.)
  • qqqwerty 4y ago
    That is not what they are asking for. Investing in t-bills either requires an account with Treasury direct, or some other brokerage. If you manage the t-bills yourself, then you have to manually initiate the transfers, which has risk of both human error (if you forget to transfer, or input the wrong amount) and counter-party risk (if the brokerage fails, you may not have access to your funds for a while). And for many companies the day-to-day operations require more than $250k in an account just to be able to clear payroll and invoices, so even if they put their reserves in t-bills, their primary account is still at risk. Small startups and business can easily end up with cash in the multi-millions. We are talking about companies with a handful of employees, too small to warrant a full time financial focused position. As the OP mentioned, there is zero reasons we can't have a zero risk depositor account. And I think most folks would be happy to pay a small fee for the service, but fees should not be necessary as the provider can still get overnight rates. But the only reason we don't have one right now is because the government doesn't want to interfere with the banks ability to make money off of our deposits. EDIT: For some extra context, I know someone that had a swap account at SVB. In theory they were protected, but they still lost access to their funds for multiple days, which can be very problematic for a business. And on top of that it wasn't (and still isn't) clear how one would recover swap accounts, so they spent the weekend reaching out to lawyers. At this point they have probably spent a week of time sorting this mess out. They are a small biotech focused on finding cures for diseases and have zero interest/resources for financial engineering. And for companies that typically only have 1-2 years of runway, loosing a week of productivity is a huge distraction.
    • Gwypaas 4y ago
• analyst74 4y ago
  What if the federal reserve goes down? Or just that US dollar goes down in value. Even if you only do business within the US, exchange risk is baked into your supply chain and inflation.
  • gshubert17 4y ago
    The Federal Reserve Bank's current balance sheet (as of last Thursday, https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm ) shows they hold $4.5 trillion in Treasury notes and bonds and $2.6 trillion in MBS (mortgage-backed securities) out of a total of $8.3 trillion. The first two numbers are face value not market value. If market value is 10% less than face value for these securities on average, then the Fed would have unrealized losses of about $700 billion. But the Fed doesn't have the same insolvency or liquidity risks that ordinary commercial banks do. The US dollar would go down in value if there were more dollar sellers than buyers. That would happen if those with dollars had something else to buy. The Us dollar index is up a bit today, so far. I'd imagine at the moment that a run on the dollar would be unlikely. But there could be some combination of circumstances . . .
• lottin 4y ago
  Banks make money from loans. A bank that didn't make loans would have to make money from deposits by charging a large fee to its depositors, and compete for deposits with other banks that don't charge a fee.
• Night_Thastus 4y ago
  The better bet in your case is a Credit Union. Something local and not very large. They're smaller organizations with far less overhead and no stupid fees for every little thing. Perfect for just storing money if that's all you need.
• jameshart 4y ago
  You should probably read patio11’s The Alchemy of Deposits - https://www.bitsaboutmoney.com/archive/the-alchemy-of-deposits/ https://www.bitsaboutmoney.com/archive/the-alchemy-of-deposi...
• lovecg 4y ago
  Any bank that tries that would have to charge a fee to cover costs and will quickly lose business to the other “banks” that don’t do that. The fundamental lie here is allowing banks to tell you you have “cash” deposited and “available” with them. If the online app showed the truth - how your $10k you deposited turned into some shares in mortgage backed securities or whatnot, the alternative “just pay to park some cash” might be able to survive. I have the same pet peeve about Amazon being able to tell you that you “buy” a Kindle book instead of buying a revocable license to read it temporarily. It’s all false advertising really and it’s eroding competition and consumer trust.
  • saurik 4y ago
    The operations fee required for that company posited to have just raised its series A to park its fat stacks of cash is going to be negligible (as it should be constant for any size of account).
    • lovecg 4y ago
      Well the other side of the equation is it would be very very tempting to do something with all that cash. Like “let’s fire the CEO who doesn’t go for it” tempting. I don’t see this working without regulation.
      • saurik 4y ago
        The problem for the startup is they are already doing something super risky and so want to be 100% conservative with the cash used to finance their operations. The last thing their investors want to hear is "so yeah, you wanted us to shoot for the moon with your money, but we didn't want to lose out on a couple percent of interest so we invested it in the market and that's down 20% right now so we're having to wait a bit to execute part of our strategy as we expect that to go back up soon". Like, the problem is that the mental model of this money is wrong: there needs to be a place where a company that intends to take a bunch of money in and then spend it over the course of a few years can do that without it causing everyone a bunch of issues as those deposits were supposedly backing loans to still other people (such as that story with the hashicorp people that was posted here yesterday with the Chase bank branch that failed to understand that a startup's goal is to lose money, not invest it).
• jameshart 4y ago
  The Federal Reserve doesn’t want to be in the business of managing all the infrastructure of payments. Banks offer a deposit product that lets you do useful things like ‘get your salary paid directly into your account from your employer’s account’, and ‘use a debit card to authorize transferring a couple of bucks to Starbucks’s account’.
  • bombcar 4y ago
    > The Federal Reserve doesn’t want to be in the business of managing all the infrastructure of payments. I mean they're trying to work with it: https://www.federalreserve.gov/paymentsystems/fednow_about.htm https://www.federalreserve.gov/paymentsystems/fednow_about.h...
    • jameshart 4y ago
      Fair - although still through depository banks.
• mike_hearn 4y ago
  This is actually what CDBC proposals are about, at least originally. The idea is that by making the computing infrastructure of the central bank scale up and out, companies and even individuals can directly hold and transfer "hard money" i.e. money directly issued by the central bank, without needing an intermediary bank. When I was last tangentially involved in such projects it was quite unclear how they thought this would interact with monetary policy. Narrow banks could easily be created today without any new IT systems, but generally, governments are unwilling to do what it takes to enable them for political and financial reasons. At some level it's another obfuscated way of raising revenue without explicitly raising taxes: they force people to deposit money in banks, force banks to lend those deposits to "low risk" counterparties like themselves giving them more money to spend on vote-winning policies, then if the banks go under they either print the money to bail them out (taxation via inflation), or force banks to charge the depositors (taxation with the banks as collectors), thus hiding the true nature of what's happening. To get banks with zero risk deposits is therefore not really an infrastructure problem - banks could easily just park cash with the CB and then charge fees for administration of things like the websites, the branches and so on. The problem is to convince governments to reduce their spending levels to the point where they can eliminate the rules forcing banks to loan them money, which in turn would allow narrow banks/accounts to appear, and that in turn would allow them to start removing the guarantee on deposits. In such a system people who wanted ROI would have to explicitly move some deposits into funds that expose the liquidity risks and requirements, and which can be left to collapse without a bailout if they make big losses. Unfortunately governments are currently stuck in a local minima. Although everyone can see that bank runs are bad, and that they're also easy to eliminate, doing so would require people to believe that the government will not bail out depositors at a fractional reserve bank if there's a run. For as long as people suspect the government's commitment to the policy is weak, the winning move is to keep banking with a fractional reserve bank and pocket the zero-risk interest yields. The suckers who put their money in a safer place will end up poorer than those who put their money into a bank that later collapses.
• rrrrrrrrrrrryan 4y ago
  There are a few full-reserve banks, (as opposed to fractional reserve banks), where your money is not gambled with at all, but nobody uses them because nobody wants to pay money to have a bank account. There are Massachusetts banks insured by the DIF (the inspiration for the FDIC) that has insurance for deposits over 250k, but at that point you're kind of putting more faith in the state of Massachusetts than the U.S. government. > Start-ups who raise a Series A aren't looking to earn 1% on it - it seems silly that they can't really do anything with it that doesn't take on risk, and that FDIC insurance for just storing cash only goes up to a low amount. If this is what they're looking for, they should probably just be banking with a SIB [1]. Wells Fargo and Bank of America might pay laughably low interest rates on their accounts, and deposits might technically only be insured up to 250k, but the U.S. government cannot and will not let these banks fail under any circumstances because they would drag the entire U.S. economy down with them. [1] https://en.wikipedia.org/wiki/List_of_systemically_important_banks https://en.wikipedia.org/wiki/List_of_systemically_important...
• giantg2 4y ago
  For most of us, a bank is a place to just park cash. Most people are well under the $250k insurance. It seems the government is willing to cover depositors above that amount now too (SVB).
• marvin 4y ago
  I don't think this is missing at all. It's literally just what a bank does. Historically, a bog standard, straight-up boring old school bank. No fancy investment banking, no crazy growth strategy, no risky lending to maximize returns, no emperor's-new-clothes financial fashion tricks that we must do now because everyone else does them. I worked for many years at a bank that did just that. We happened to be able to offer significantly lower deposit rates than our competition, because we had very low exposure to the kind of banking that risks government takeover due to surprising repricing events. Wealthy customers too lazy or otherwise unable to spread deposits around to stay below the deposit guarantees chose us to an overwhelming degree, in spite of competition that offered better rates. Granted, it's in Europe. Don't know if there's stuff in the US environment that makes this harder.