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Banks have been consolidating for a century. This is by design. > The commercial-bank population reached 14,496 in 1984. It turns out this was a post-1940 peak

Banks have been consolidating for a century. This is by design. > The commercial-bank population reached 14,496 in 1984. It turns out this was a post-1940 peak that may never be reached again. Between 1984 and 2020, the number of banks decreased by 70%. https://www.stlouisfed.org/en/on-the-economy/2021/december/steady-decline-number-us-banks https://www.stlouisfed.org/en/on-the-economy/2021/december/s... The number of new banks that have formed is also anemic. Less than 100 new charters over last 10 years, when previously 100 per year was typical. https://banks.data.fdic.gov/explore/historical?displayFields=STNAME%2CTOTAL%2CBRANCHES%2CNew_Char&selectedEndDate=2022&selectedReport=CBS&selectedStartDate=1934&selectedStates=0&sortField=YEAR&sortOrder=desc https://banks.data.fdic.gov/explore/historical?displayFields... The government is consolidating banks. All banks have had ever more rules and regulations in the last 30 years, but the end result is fewer, larger banks that are more tied in with the state. Is this good or bad? Opinions differ. What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer. You would also think that with the rapid change in technology and innovation over the past 30 years there would be more banks rather than less - freedom of choice and innovation and whatnot - but that is not the case. https://en.m.wikipedia.org/wiki/Narrow_banking https://en.m.wikipedia.org/wiki/Narrow_banking https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-bank.html?m=1 https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-... I believe that fractional reserve banking based on fiat currency is inherently risky. However the state does not make it easy for me to avoid this. However it is possible for even the moderately wealthy person to take safe action to reduce such risk.

chowells 3y ago
> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries Uh... what's perplexing about the fact that the government wants banks to offer loans?
- WanderPanda 3y ago
  It just exposes how messed up the fiat system is. You have to disallow full reserve banks because they would be better (safer) and would suck in most of the deposits. It is really disgusting how this highly leveraged system is kept alive by the state benefiting everyone who takes unreasonable risks on behalf of others
  - arcticbull 3y ago
    Fractional reserve isn't some scam, it's where money comes from. Not only that, all the bank failures had their entire equity value zeroed out so no, the people who mismanaged the bank didn't walk out like bandits. It's not 'highly leveraged.'
    - WanderPanda 3y ago
      It‘s not a secret that bank equity does not yield the best returns because most of the excess returns that come from the risks taken are siphoned off in form of inflated salaries and „prestige“ (e.g. the most pristine office real estate). I agree that fractional reserve banking can be efficient but only if the incentives are aligned. And this is only the case if the depositors are at risk and forced to choose banks with good track records for their savings to be invested profitably, yet safely (risk/return profile).
      - arcticbull 3y ago
        > And this is only the case if the depositors are at risk and forced to choose banks with good track records for their savings to be invested profitably, yet safely (risk/return profile). Barely anyone is qualified to assess the quality of a bank. It's difficult even for auditors. It shouldn't be your uncle's responsibility, it should be the responsibility of regulators. That's really nothing to do with fractional reserve and more of an assessment of the US banking system.
        monero-xmr 3y ago
        You have a presumption that experts should be believed. However the roots of my own success are based on ignoring “experts”, from my college professors to my bosses, until I was so successful that I became the “expert”, and others started listening to me. The concept of “expertise” is bullshit. If something is difficult to understand, even for so-called “experts”, that is a sign of severe dysfunction. All topics can be distilled into simplistic understanding. Once you speak in academic gobble-dee-gook you are done for.
BLKNSLVR 3y ago
The rejection, or at least non-acceptance, of The Narrow Bank's (TNB) application does seem to imply that there is some kind of controlled narrative being worked towards that TNB doesn't comply with. The more that politics disconnects from working 'for the people', the more examples will come to the fore of logical solutions such as TNB being rejected or outlawed or regulated into an inability to function because the very fact that they're logical solutions means that they're working against political agendas that are incompatible with 'the reality on the ground'.
arcticbull 3y ago
> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer. I guess, in some ways, but that's exactly what led to SVB's collapse. It's only safer in a declining or flat interest rate environment or when you use short duration treasuries. Otherwise, this exact strategy leaves you vulnerable to a bank run. See above. This investment strategy requires active risk management, and that means the same kind of regulation you're bristling at. > I believe that fractional reserve banking based on fiat currency is inherently risky. However the state does not make it easy for me to avoid this. However it is possible for even the moderately wealthy person to take safe action to reduce such risk. It's not really, fractional reserve is where money comes from. Money is created when debt is issued and it is destroyed as the debts are repaid. This is how interest rates control the money supply. As interest rates go up, repayments remain constant and originations drop, so the supply goes down. The M2 supply has shrunk about a trillion dollars over the last 8 months, and this is why. It's weird to me how few people this seems intuitive for, and I only learned about it over the last few years. The risk is basically zero for anyone under the FDIC limit, which is, substantially everyone. The average American can't rustle up $500 for an emergency expense, never mind $250K in un-invested cash. If you have more than $250-500K but less than $5.5M you can use a sweep account. If you have more than that, you can pay for private insurance. Remember, nobody has lost a penny of FDIC insured funds in over 100 years, so why exactly do you think it's risky again? > However it is possible for even the moderately wealthy person to take safe action to reduce such risk. What do you mean exactly.
- fourier54 3y ago
  >Money is created when debt is issued and it is destroyed as the debts are repaid I understand money is created with issued debt, since the interests do not exist yet. I don't understand why do you say money is destroyed when interest are repaid? If the bank now holds that money, why do you say it is destroyed?
  - arcticbull 3y ago
    When you borrow money at a fractional reserve bank, they don't give you other people's money. They create on one side new money, and they give it to you. The create on the other side, a negative balance. As you pay back your loan, it increments the negative balance and evaporates. The concept of fractional reserve lending just means that banks are allowed to issue new money to make loans. But the concept isn't really accurate anymore anyways, banks aren't limited in how much money they can create based on a percentage of their asset portfolio but instead based on complex loan qualification rules.
Hermitian909 3y ago
> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer. The reasoning here is contentious but straightforward. Narrow banking is safer banks cannot over-leverage themselves in the same way and cause a financial crisis. This means the existence of a narrow bank will very quickly kill fractional reserve banking; why would you as an individual take the extra risk? Why might that be a problem? Proponents of fractional reserve banking say that the higher volume of loans it enables collectively allows society to take larger risks that result in higher quality of life over time. Without that volume of loans you'd see less housing being built, less small business loans, etc. The argument goes that the crashes are worthwhile for the overall effect on the economy. Whether fractional reserve banking is a net good over narrow banking is up to debate but the game theory behind why they cannot coexist is hard to argue with. Individuals will overwhelmingly take the choice of "less risk" and switch to narrow banking.
- zmgsabst 3y ago
  I’m not following: If the higher risk is a net benefit, then those riskier banks should be able to pay higher returns on your deposits. Why don’t they?
  - thriftwy 3y ago
    I believe the China model was to pay abysmal returns for bank deposits and use that to fuel economy, but now we have discovered that in the USA a very similar scheme is implemented when you place your money into lion's mouth basically for free.
  - Hermitian909 3y ago
    The hypothesis is that the net benefit to society is higher. The banks can only offer higher returns based on the value they capture, which might be a lot less than they produce.
senectus1 3y ago
https://www.smbc-comics.com/comic/moat https://www.smbc-comics.com/comic/moat Seems to sum it up nicely...
pyuser583 3y ago
Why don’t they allow narrow banks? Isn’t it something about decreasing the power of the federal reserve to fight inflation?
than3 3y ago
As you say, its not a new plan. First comes concentration and consolidation, being close to the money supply provides benefits not available to others. The bail-out game repeated every 8-10 years. Then when that can no longer be done, in the face of crisis nationalization, or inflation until the currency fails bleeding off as much personal profit as possible into other assets and suppressing those assets so you get a bargain. (Ask yourself how two-party collusive options trading in the metals market might affect the spot price, could you farm it for consistent profit while ensuring the USD remains the safer alternative if you were the size of the big 5/4?) Unfortunately, counter-party risk is inherent in just about everything these days. You are right to consider it risky, especially when there technically is no longer a fractional reserve. You may want to take a look at the FDIC website for monetary policy required reserves, protip its 0% a/o 2020. The only reason everything hasn't collapsed is implementing capital reserve requirements via Basel III which counts stock market capitalization as part of the reserves (based on what I read). As for why there aren't new banks, just look at the requirements for chartering a bank. You must accept personal liability for your decisions as a Board Member and have no financial interest in the bank to be on the board of directors. You can receive no compensation, that started after 2008. Who in their right mind aside from crooks who lie or ethical religious rural/grounded/moral/actual communities (Amish/Mennonites) would find that level of exposure acceptable? The former are so common, and the latter upstanding folk so rare...
JumpCrisscross 3y ago
> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer Narrow banks pass deposits into reserves. It is a good idea. It probably needs new statute to work. It doesn’t make sense to pay the same interest on narrow-bank reserves as on risk reserves because the narrow bank, by design, must hold those reserves. The central bank doesn’t have to compete with other assets to drain that liquidity from the economy. Whether the rate paid to the narrow bank by the Fed is zero, de minimis, the repo rate or negative is a political question more than a monetary one. (Put another way: Interest on excess reserves is a crisis-era invention [1]. A narrow bank has, by definition, no excess reserves.) [1] https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm https://www.federalreserve.gov/monetarypolicy/reserve-balanc...

chowells 3y ago

> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries Uh... what's perplexing about the fact that the government wants banks to offer loans?

WanderPanda 3y ago
It just exposes how messed up the fiat system is. You have to disallow full reserve banks because they would be better (safer) and would suck in most of the deposits. It is really disgusting how this highly leveraged system is kept alive by the state benefiting everyone who takes unreasonable risks on behalf of others
- arcticbull 3y ago
  Fractional reserve isn't some scam, it's where money comes from. Not only that, all the bank failures had their entire equity value zeroed out so no, the people who mismanaged the bank didn't walk out like bandits. It's not 'highly leveraged.'
  - WanderPanda 3y ago
    It‘s not a secret that bank equity does not yield the best returns because most of the excess returns that come from the risks taken are siphoned off in form of inflated salaries and „prestige“ (e.g. the most pristine office real estate). I agree that fractional reserve banking can be efficient but only if the incentives are aligned. And this is only the case if the depositors are at risk and forced to choose banks with good track records for their savings to be invested profitably, yet safely (risk/return profile).
    - arcticbull 3y ago
      > And this is only the case if the depositors are at risk and forced to choose banks with good track records for their savings to be invested profitably, yet safely (risk/return profile). Barely anyone is qualified to assess the quality of a bank. It's difficult even for auditors. It shouldn't be your uncle's responsibility, it should be the responsibility of regulators. That's really nothing to do with fractional reserve and more of an assessment of the US banking system.
      - monero-xmr 3y ago
        You have a presumption that experts should be believed. However the roots of my own success are based on ignoring “experts”, from my college professors to my bosses, until I was so successful that I became the “expert”, and others started listening to me. The concept of “expertise” is bullshit. If something is difficult to understand, even for so-called “experts”, that is a sign of severe dysfunction. All topics can be distilled into simplistic understanding. Once you speak in academic gobble-dee-gook you are done for.

BLKNSLVR 3y ago

The rejection, or at least non-acceptance, of The Narrow Bank's (TNB) application does seem to imply that there is some kind of controlled narrative being worked towards that TNB doesn't comply with. The more that politics disconnects from working 'for the people', the more examples will come to the fore of logical solutions such as TNB being rejected or outlawed or regulated into an inability to function because the very fact that they're logical solutions means that they're working against political agendas that are incompatible with 'the reality on the ground'.

arcticbull 3y ago

> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer. I guess, in some ways, but that's exactly what led to SVB's collapse. It's only safer in a declining or flat interest rate environment or when you use short duration treasuries. Otherwise, this exact strategy leaves you vulnerable to a bank run. See above. This investment strategy requires active risk management, and that means the same kind of regulation you're bristling at. > I believe that fractional reserve banking based on fiat currency is inherently risky. However the state does not make it easy for me to avoid this. However it is possible for even the moderately wealthy person to take safe action to reduce such risk. It's not really, fractional reserve is where money comes from. Money is created when debt is issued and it is destroyed as the debts are repaid. This is how interest rates control the money supply. As interest rates go up, repayments remain constant and originations drop, so the supply goes down. The M2 supply has shrunk about a trillion dollars over the last 8 months, and this is why. It's weird to me how few people this seems intuitive for, and I only learned about it over the last few years. The risk is basically zero for anyone under the FDIC limit, which is, substantially everyone. The average American can't rustle up $500 for an emergency expense, never mind $250K in un-invested cash. If you have more than $250-500K but less than $5.5M you can use a sweep account. If you have more than that, you can pay for private insurance. Remember, nobody has lost a penny of FDIC insured funds in over 100 years, so why exactly do you think it's risky again? > However it is possible for even the moderately wealthy person to take safe action to reduce such risk. What do you mean exactly.

fourier54 3y ago
>Money is created when debt is issued and it is destroyed as the debts are repaid I understand money is created with issued debt, since the interests do not exist yet. I don't understand why do you say money is destroyed when interest are repaid? If the bank now holds that money, why do you say it is destroyed?
- arcticbull 3y ago
  When you borrow money at a fractional reserve bank, they don't give you other people's money. They create on one side new money, and they give it to you. The create on the other side, a negative balance. As you pay back your loan, it increments the negative balance and evaporates. The concept of fractional reserve lending just means that banks are allowed to issue new money to make loans. But the concept isn't really accurate anymore anyways, banks aren't limited in how much money they can create based on a percentage of their asset portfolio but instead based on complex loan qualification rules.

Hermitian909 3y ago

> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer. The reasoning here is contentious but straightforward. Narrow banking is safer banks cannot over-leverage themselves in the same way and cause a financial crisis. This means the existence of a narrow bank will very quickly kill fractional reserve banking; why would you as an individual take the extra risk? Why might that be a problem? Proponents of fractional reserve banking say that the higher volume of loans it enables collectively allows society to take larger risks that result in higher quality of life over time. Without that volume of loans you'd see less housing being built, less small business loans, etc. The argument goes that the crashes are worthwhile for the overall effect on the economy. Whether fractional reserve banking is a net good over narrow banking is up to debate but the game theory behind why they cannot coexist is hard to argue with. Individuals will overwhelmingly take the choice of "less risk" and switch to narrow banking.

zmgsabst 3y ago
I’m not following: If the higher risk is a net benefit, then those riskier banks should be able to pay higher returns on your deposits. Why don’t they?
- thriftwy 3y ago
  I believe the China model was to pay abysmal returns for bank deposits and use that to fuel economy, but now we have discovered that in the USA a very similar scheme is implemented when you place your money into lion's mouth basically for free.
- Hermitian909 3y ago
  The hypothesis is that the net benefit to society is higher. The banks can only offer higher returns based on the value they capture, which might be a lot less than they produce.

senectus1 3y ago

https://www.smbc-comics.com/comic/moat https://www.smbc-comics.com/comic/moat Seems to sum it up nicely...

pyuser583 3y ago

Why don’t they allow narrow banks? Isn’t it something about decreasing the power of the federal reserve to fight inflation?

than3 3y ago

As you say, its not a new plan. First comes concentration and consolidation, being close to the money supply provides benefits not available to others. The bail-out game repeated every 8-10 years. Then when that can no longer be done, in the face of crisis nationalization, or inflation until the currency fails bleeding off as much personal profit as possible into other assets and suppressing those assets so you get a bargain. (Ask yourself how two-party collusive options trading in the metals market might affect the spot price, could you farm it for consistent profit while ensuring the USD remains the safer alternative if you were the size of the big 5/4?) Unfortunately, counter-party risk is inherent in just about everything these days. You are right to consider it risky, especially when there technically is no longer a fractional reserve. You may want to take a look at the FDIC website for monetary policy required reserves, protip its 0% a/o 2020. The only reason everything hasn't collapsed is implementing capital reserve requirements via Basel III which counts stock market capitalization as part of the reserves (based on what I read). As for why there aren't new banks, just look at the requirements for chartering a bank. You must accept personal liability for your decisions as a Board Member and have no financial interest in the bank to be on the board of directors. You can receive no compensation, that started after 2008. Who in their right mind aside from crooks who lie or ethical religious rural/grounded/moral/actual communities (Amish/Mennonites) would find that level of exposure acceptable? The former are so common, and the latter upstanding folk so rare...

JumpCrisscross 3y ago

> What is perplexing is the government has not allowed a “narrow bank” that simply passes deposits into treasuries, which would be much safer Narrow banks pass deposits into reserves. It is a good idea. It probably needs new statute to work. It doesn’t make sense to pay the same interest on narrow-bank reserves as on risk reserves because the narrow bank, by design, must hold those reserves. The central bank doesn’t have to compete with other assets to drain that liquidity from the economy. Whether the rate paid to the narrow bank by the Fed is zero, de minimis, the repo rate or negative is a political question more than a monetary one. (Put another way: Interest on excess reserves is a crisis-era invention [1]. A narrow bank has, by definition, no excess reserves.) [1] https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm https://www.federalreserve.gov/monetarypolicy/reserve-balanc...