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It's not that simple for The Fed or the Federal Government, as they have to take over all the tedious affairs in banking (like KYC, among many smaller tasks), s
by fdr 3y ago
It's not that simple for The Fed or the Federal Government, as they have to take over all the tedious affairs in banking (like KYC, among many smaller tasks), so I suspect they'll be reluctant. But that doesn't mean it would be a bad thing to talk them into it.
- kachnuv_ocasek 3y agoBut they could still allow for narrow banks to exist which would intermediate these “nuisances” while passing through all deposits to Fed reserves.
- rocqua 3y agoThere have been attempts to start a bank that would just do this. The FED refused to give those banks a banking license. If they would give that license, then the 'narrow bank' gets the job of KYC, customer service, and everything else. But the funds remain safe at the FED. Problem is, this takes a lot of money out of the economy if it catches on. That likely will reduce investment, and damage the economy. So regulators dislike narrow banking.
- fdr 3y agoThis sounds to me pretty close to a treasury money market fund, doesn't it? Money market funds are not insured for some nominal amount, but among the most common in practice have significant repurchase agreements with The Fed and hold short-dated treasury debt, but this plus your brokerage it's pretty close to the narrow bank idea. I suppose the Fed could try to make the circle slightly rounder here, but they may look at the hundreds of billions of dollars in such funds, which are by nature extremely "narrow" quasi-banking devices (because they only support a tiny form of maturity transformation, in asset type and term length), and decide "good enough, economic needs of this kind met"