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Banking is fundamentally broken. People want zero risk, demand deposits that pay interest. There’s no business model that can provide that. It would be perfect
by bradleyjg 3y ago
Banking is fundamentally broken. People want zero risk, demand deposits that pay interest. There’s no business model that can provide that.
It would be perfectly possible for a business to provide zero risk demand deposits—-but the business would have to charge customers for its custodial operations rather than making money by writing loans.
Of course because we live in times where no one can tell the people that what they want is impossible and ridiculous, we instead have a house of cards with various parts of the government (including parts we pretend aren’t the government) eating the risks.
- runnerup 3y agoPeople aren’t demanding deposit accounts that pay interest. The banks with the most deposits are providing 0.01% interest. People are still sticking their money there more than they put in banks which are offering >3% APR.
- femiagbabiaka 3y agoExactly right. People want reliability and stability from "household names" and they're go to banks that are offering fundamentally worse products[1] in order to get it. 1: At least in savings. The larger companies have insane credit card deals.
- Invictus0 3y agoThat's because high yield bank accounts are a phenomenon of the last 6 months and retail by and large hasn't got the message yet. 0.01 is not likely to last forever, and the TBTF banks are losing deposits.
- mint2 3y agoWalked by a chase branch, they had some advertisement for a 4% cd. So Apparently the big banks are starting to feel the account drain. Also brokered cds from the likes of Wells Fargo and similar can be 5%. Big banks definitely are starting to feel it
- kevinventullo 3y agoCD’s are not the same thing as demand deposit accounts. They’re less liquid than treasuries.
- carlosjobim 3y agoHigh yield bank accounts was also something that suddenly appeared before the 2008 financial melt down. Now that they are appearing again I can be completely confident that we will see a huge economic depression. All man made of course - this could go away if it wasn't for the evil side of human nature.
- bradleyjg 3y agoThat’s still positive. If they want no risk, that number needs to be negative to cover the costs of holding and moving money around.
- runnerup 3y agoIt really doesn’t. They charge plenty of fees to plenty of customers. They also use daily banking as a loss-leader for profitable services like loans. Chase collected $1.25 billion in overdraft fees alone last year. My “Chase College” account currently gets charged $6/month for some reason I haven’t bothered figuring out, maybe a newly instated minimum balance or direct deposit requirement that wasn’t there years ago.
- bradleyjg 3y agoGreat, so if it really doesn’t already, let’s just get rid of the pretense. Make it illegal to offer demand deposits while taking risks with depositors’ funds. No more need to worry about bank runs.
- winkeltripel 3y agoIt's almost like the glass-steagal act had a good approach for the average person.
- lesuorac 3y agoEh, this really seems like moving the goal posts. The problem with SVB &other is not that they fundamentally were losing money. They just weren't making _enough_ money so they took on additional risk. If SVB hedged the IRR they wouldn't have gone bankrupt; they just would've had less profit. The banks people want are technically feasible.
- bradleyjg 3y agoThere’s no way to provide risk free returns on demand deposits, other than the government just deciding to give away money. Hedging doesn’t magically eliminate risk at zero cost.
- skeeter2020 3y agoand they're not even making that fractional interest after they pay fees and buy addons.
- ajmurmann 3y agoThis! I want my bank to be a place where I can place money to use for transactions. For returns I have my Vanguard account where I can pick investments for the risk/reward profile I want
- oarsinsync 3y ago> People want zero risk, demand deposits that pay interest. There’s no business model that can provide that. > It would be perfectly possible for a business to provide zero risk demand deposits—-but the business would have to charge customers for its custodial operations rather than making money by writing loans That was true when we lived with 0% interest rates. Now, there’s no reason why a narrow bank couldn’t take deposits, stick them in with the fed providing 4% interest, and keep 25% of that for itself to cover its costs, passing 3% onto the customer. Except they wont get a banking license issued if they state thats what they intend to do, because the system depends on people depositing money with banks that make risky loans, so that the risk is spread across lots of people.
- bradleyjg 3y ago> stick them in with the fed providing 4% interest Where is this risk free return coming from? You are just saying in more words that the government should give the people what they want.
- toomuchtodo 3y agohttps://www.brookings.edu/blog/ben-bernanke/2016/02/16/the-feds-interest-payments-to-banks/ https://www.brookings.edu/blog/ben-bernanke/2016/02/16/the-f...
- imtringued 3y agoThat article says that the Fed chooses interest on reserves to be below the market rate of interest...
- graeme 3y agoYou left out “zero risk” Banks have always been able to fail, then you lose the deposits. What people are now asking for is unlimited insurance, which encourages risk takings amongst banks
- vkou 3y ago
- lr4444lr 3y agoLike Richard Pryor said as Montgomery Brewster in Brewster's Millions[0]: "I don't want the interest. It's your vault. I should be paying YOU rent!" [0] https://www.imdb.com/title/tt0088850/ https://www.imdb.com/title/tt0088850/
- 0x457 3y ago> Banking is fundamentally broken. People want zero risk, demand deposits that pay interest. There’s no business model that can provide that. Given that many people bank at gigantic banks that pay 0.00001% interest...I don't think that's true.
- WeylandYutani 3y agoMany people barely have savings so it doesn't really matter if interest is 1% or 6%. Personally I judge banks on their app and IT reliability.
- akira2501 3y ago> There’s no business model that can provide that. They used to. So.. what changed?
- bradleyjg 3y agoThey never did. Since we’ve had banks, we’ve had banking crises. Either people need to accept that there’s risk or we need to scrap the model.