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The bank was at fault. No question about that. But do you really believe that all of the customers all of the sudden needed to spend $42B the next day to make p

The bank was at fault. No question about that. But do you really believe that all of the customers all of the sudden needed to spend $42B the next day to make payroll?

mrguyorama 4y ago
No but a bank having poor risk management is a very justifiable reason to take all your money out of it.
rglover 4y ago
It shouldn't matter. If I want my money, in part or in full, you should give it to me.
- qotgalaxy 4y ago
  [dead]
- Scarblac 4y ago
  How much would you be willing to pay for an account for which that was always true?
  - sebzim4500 4y ago
    I'd certainly accept a lower interest rate.
    - prottog 4y ago
      But would you pay a negative interest rate, i.e. a fee? Wouldn't having millions of dollars available on demand be a service that you would have to pay for?
      - sebzim4500 4y ago
        Yeah, but I don't think I would have to. German bank accounts are guaranteed by the government but still pay a positive interest rate.
  - rglover 4y ago
    Depends on the balance, but I could see a tiered monthly subscription model working well. So, if I have $10,000, my monthly fee is relatively low or just free, but if I have > $1M that fee goes up. Could be a percentage with a ceiling or an annual cap. Could just package it as Priority Withdraw Guarantee and charge it as an add-on and part of the guarantee is that your cash will be kept in a reserve independent of investment activities.
jerf 4y ago
The game theory on this is vicious, but not that complicated. Standing on some sort of "customers shouldn't participate in bank runs" principle is a great way to end up in some sort of trouble or other. It also isn't exactly clear to me how to stand "customers shouldn't participate in bank runs" on any sort of firm ethical basis that both stands up to theoretical scrutiny and also is an ethic that can be practically lived by. You put money in a bank. The bank counters with a promise that you can withdraw it whenever you like. Is it really somehow immoral for you to take it up on that promise when you become concerned they can't hold it up? Having already put your money in the bank, is it now somehow also your responsibility for them to be able to live up to their promise, let alone their promises to other people? Am I morally obligated to see that my bank has a reasonable chance to not fulfill their promise, but just live life as if it's not? You might be able to work this into an ethic, but I would submit that at the very least it's going to be a long journey, not something that can be simply asserted as an unexamined premise. Taking a consequentialist point of view is superficially appealing, but it is unclear to me that across any time span other than a hyper-short one that a full accounting of the situation leads to an obligation to depositors to ignore threats to their deposit. You can easily simply end up destroying the bank system as a whole as you require people to incur risks they're not willing to incur in order to do some banking and other such things, so they choose not to bank at all. "You need to leave your money in even when it's at immediate risk and also you're not allowed to consider second and higher order consequences because that's immoral too and also you're not allowed to ask the banks to consider them either" gets to be rather untenable on a number of levels; even if you want to propose such an ethic theoretically it clearly fails the living-by-it-practically test. But, again, I'm not saying you couldn't possibly work this into a coherent ethic, I'm just saying, it's pretty challenging. It's hard to avoid that you basically end up writing in that you should allow people to basically lie to your face about the promises they made to you and you're morally obligated to live by those lies.
lowkey 4y ago
If you were caught holding $1 million in investor funds designated to pay your employees salaries for the next X months and you learned there was a real risk of your bank failing. Knowing that only $250k of those funds were FDIC insured, would you have left your funds in the bank and hoped for the best? If you answered Yes, how would you explain your decision to your investors or employees?
- vlovich123 4y ago
  Maybe you should have kept it in a managed money market account instead of a savings account? FDIC limits aren’t some mysterious new thing and businesses do have other options available.
  - lowkey 4y ago
    Sure, that would have been ideal in hindsight but based on the scenario I described above, I would argue that the depositor is simply being prudent to withdraw their funds from a bank if they are concerned about it’s stability. There is zero benefit for them to take the risk of leaving their funds with the bank and considerable downside.

The bank was at fault. No question about that. But do you really believe that all of the customers all of the sudden needed to spend $42B the next day to make payroll?

mrguyorama 4y ago

No but a bank having poor risk management is a very justifiable reason to take all your money out of it.

rglover 4y ago

It shouldn't matter. If I want my money, in part or in full, you should give it to me.

qotgalaxy 4y ago
[dead]
Scarblac 4y ago
How much would you be willing to pay for an account for which that was always true?
- sebzim4500 4y ago
  I'd certainly accept a lower interest rate.
  - prottog 4y ago
    But would you pay a negative interest rate, i.e. a fee? Wouldn't having millions of dollars available on demand be a service that you would have to pay for?
    - sebzim4500 4y ago
      Yeah, but I don't think I would have to. German bank accounts are guaranteed by the government but still pay a positive interest rate.
- rglover 4y ago
  Depends on the balance, but I could see a tiered monthly subscription model working well. So, if I have $10,000, my monthly fee is relatively low or just free, but if I have > $1M that fee goes up. Could be a percentage with a ceiling or an annual cap. Could just package it as Priority Withdraw Guarantee and charge it as an add-on and part of the guarantee is that your cash will be kept in a reserve independent of investment activities.

jerf 4y ago

The game theory on this is vicious, but not that complicated. Standing on some sort of "customers shouldn't participate in bank runs" principle is a great way to end up in some sort of trouble or other. It also isn't exactly clear to me how to stand "customers shouldn't participate in bank runs" on any sort of firm ethical basis that both stands up to theoretical scrutiny and also is an ethic that can be practically lived by. You put money in a bank. The bank counters with a promise that you can withdraw it whenever you like. Is it really somehow immoral for you to take it up on that promise when you become concerned they can't hold it up? Having already put your money in the bank, is it now somehow also your responsibility for them to be able to live up to their promise, let alone their promises to other people? Am I morally obligated to see that my bank has a reasonable chance to not fulfill their promise, but just live life as if it's not? You might be able to work this into an ethic, but I would submit that at the very least it's going to be a long journey, not something that can be simply asserted as an unexamined premise. Taking a consequentialist point of view is superficially appealing, but it is unclear to me that across any time span other than a hyper-short one that a full accounting of the situation leads to an obligation to depositors to ignore threats to their deposit. You can easily simply end up destroying the bank system as a whole as you require people to incur risks they're not willing to incur in order to do some banking and other such things, so they choose not to bank at all. "You need to leave your money in even when it's at immediate risk and also you're not allowed to consider second and higher order consequences because that's immoral too and also you're not allowed to ask the banks to consider them either" gets to be rather untenable on a number of levels; even if you want to propose such an ethic theoretically it clearly fails the living-by-it-practically test. But, again, I'm not saying you couldn't possibly work this into a coherent ethic, I'm just saying, it's pretty challenging. It's hard to avoid that you basically end up writing in that you should allow people to basically lie to your face about the promises they made to you and you're morally obligated to live by those lies.

lowkey 4y ago

If you were caught holding $1 million in investor funds designated to pay your employees salaries for the next X months and you learned there was a real risk of your bank failing. Knowing that only $250k of those funds were FDIC insured, would you have left your funds in the bank and hoped for the best? If you answered Yes, how would you explain your decision to your investors or employees?

vlovich123 4y ago
Maybe you should have kept it in a managed money market account instead of a savings account? FDIC limits aren’t some mysterious new thing and businesses do have other options available.
- lowkey 4y ago
  Sure, that would have been ideal in hindsight but based on the scenario I described above, I would argue that the depositor is simply being prudent to withdraw their funds from a bank if they are concerned about it’s stability. There is zero benefit for them to take the risk of leaving their funds with the bank and considerable downside.