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I struggle to understand why there is no "deposit banks" category which would include heavy regulation, with full reserves required. There is certainly a signi

by Varqu 3y ago

I struggle to understand why there is no "deposit banks" category which would include heavy regulation, with full reserves required. There is certainly a significant number of people who just want to keep their money safe. They would happily pay 50 or 100 USD per month for an actual bank service where your money is just stored and not lend out to someone else.

lordnacho 3y ago
Isn't this called a "narrow bank"? Maybe I'm mixing terms but I've heard the idea.
- _heimdall 3y ago
  Yep, same concept. Wish I had a link to the article handy, but there was actually a bank (TNB if I'm not mistaken) trying to do exactly this that got blocked by regulators. They gave very little explanation for why the application took dramatically longer than normal before eventually being rejected. I believe the reason effectively boiled down to "we don't like your business model"
thedufer 3y ago
I think you're describing "narrow banking". It doesn't exist in the US because the government doesn't allow it. As I understand it, they don't allow it because it would be obviously better for deposits individually, but would slow down the economy as a whole by driving up the price of loans, since all of the deposit money would suddenly be unavailable for lending.
- toomuchtodo 3y ago
  Specifically, the Federal Reserve doesn’t allow it. They are explicitly stoking fractional reserve banking by preventing narrow banking, leading to this performative art (deposits backing fractional reserve lending, FDIC oversight, etc). “Can we have narrow banking?” “No!” “Okay, how about not taking actions that cause massive consolidation in the banking industry and systemic issues?” “Also no.” Spot on about cheap deposits funding lending and bank ops. https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...
- opportune 3y ago
  Before digital payments or online banking, it was common for an average Joe to keep much of what would otherwise go into a checking account in physical cash. In modern amounts maybe $5k at the high end or $500-2k on average. It didn’t seem to prevent the system from functioning; I certainly can’t seem to draw a direct conclusion between shifting to a cashless economy and the living standards of an average personal directly improving as a result of lower cost of capital, unless they had assets that would benefit from easy/low-rate credit access like a house. If the Fed keeps trying to fix failed banks through indirect money printing (covering uninsured deposits by overpaying for treasuries/MBS) they could lose control of inflation and be unable to further raise rates. That seems like a worse outcome for the average person than a slightly higher cost of capital from banks having to compete with narrow banking. And the Fed should hope for narrow banking at that point because it would be the easiest to manage compared to the other options like physical cash, crypto, and other currencies.
  - thedufer 3y ago
    Yeah, the amounts they're worried about are a few orders of magnitude larger than that. I don't think that's a compelling counter-example. > If the Fed keeps trying to fix failed banks through indirect money printing (covering uninsured deposits by overpaying for treasuries/MBS) Is this happening? The uninsured deposits are being covered by the FDIC insurance fund, which is funded by the banks. None of it is coming from the fed.
thinkmassive 3y ago
Custodia Bank is trying to do this in Wyoming. The Fed is trying to stop them at all costs.
jjav 3y ago
> There is certainly a significant number of people who just want to keep their money safe. They would happily pay 50 or 100 USD per month for an actual bank service where your money is just stored and not lend out to someone else. Realistically, who would these people be? $50-$100/mo is quite a substantial amount for just a banking fee, so it would have to be people rich enough that it's not a showstopper. But people that rich have no problem moving their money to investment accounts where they can do much better on return, so they wouldn't be customers of this.
- WeylandYutani 3y ago
  The vast majority of society doesn't have 250k+ on their bank account. Hell for most this is barely news as long as the US government keeps their FDIC insurance promise. America is no Argentina or Lebanon.

by Varqu 3y ago

lordnacho 3y ago

Isn't this called a "narrow bank"? Maybe I'm mixing terms but I've heard the idea.

_heimdall 3y ago
Yep, same concept. Wish I had a link to the article handy, but there was actually a bank (TNB if I'm not mistaken) trying to do exactly this that got blocked by regulators. They gave very little explanation for why the application took dramatically longer than normal before eventually being rejected. I believe the reason effectively boiled down to "we don't like your business model"

thedufer 3y ago

I think you're describing "narrow banking". It doesn't exist in the US because the government doesn't allow it. As I understand it, they don't allow it because it would be obviously better for deposits individually, but would slow down the economy as a whole by driving up the price of loans, since all of the deposit money would suddenly be unavailable for lending.

toomuchtodo 3y ago
Specifically, the Federal Reserve doesn’t allow it. They are explicitly stoking fractional reserve banking by preventing narrow banking, leading to this performative art (deposits backing fractional reserve lending, FDIC oversight, etc). “Can we have narrow banking?” “No!” “Okay, how about not taking actions that cause massive consolidation in the banking industry and systemic issues?” “Also no.” Spot on about cheap deposits funding lending and bank ops. https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...
opportune 3y ago
Before digital payments or online banking, it was common for an average Joe to keep much of what would otherwise go into a checking account in physical cash. In modern amounts maybe $5k at the high end or $500-2k on average. It didn’t seem to prevent the system from functioning; I certainly can’t seem to draw a direct conclusion between shifting to a cashless economy and the living standards of an average personal directly improving as a result of lower cost of capital, unless they had assets that would benefit from easy/low-rate credit access like a house. If the Fed keeps trying to fix failed banks through indirect money printing (covering uninsured deposits by overpaying for treasuries/MBS) they could lose control of inflation and be unable to further raise rates. That seems like a worse outcome for the average person than a slightly higher cost of capital from banks having to compete with narrow banking. And the Fed should hope for narrow banking at that point because it would be the easiest to manage compared to the other options like physical cash, crypto, and other currencies.
- thedufer 3y ago
  Yeah, the amounts they're worried about are a few orders of magnitude larger than that. I don't think that's a compelling counter-example. > If the Fed keeps trying to fix failed banks through indirect money printing (covering uninsured deposits by overpaying for treasuries/MBS) Is this happening? The uninsured deposits are being covered by the FDIC insurance fund, which is funded by the banks. None of it is coming from the fed.

thinkmassive 3y ago

Custodia Bank is trying to do this in Wyoming. The Fed is trying to stop them at all costs.

jjav 3y ago

> There is certainly a significant number of people who just want to keep their money safe. They would happily pay 50 or 100 USD per month for an actual bank service where your money is just stored and not lend out to someone else. Realistically, who would these people be? $50-$100/mo is quite a substantial amount for just a banking fee, so it would have to be people rich enough that it's not a showstopper. But people that rich have no problem moving their money to investment accounts where they can do much better on return, so they wouldn't be customers of this.

WeylandYutani 3y ago
The vast majority of society doesn't have 250k+ on their bank account. Hell for most this is barely news as long as the US government keeps their FDIC insurance promise. America is no Argentina or Lebanon.