3 ms·

So I read the Matt Levine article on this and a couple other pieces, and I'm not getting the impression Levine or other mainstream economists think this is a go

by bpt3 8mo ago

So I read the Matt Levine article on this and a couple other pieces, and I'm not getting the impression Levine or other mainstream economists think this is a good idea as it currently stands? I don't necessarily think they are suggesting its clearly bad either, but it didn't seem as positive on it as I was expecting from your comment. Can you provide some more information, because I'm not really seeing the value in being required to interact with more financial institutions in practice.

lokar 8mo ago
When you deposit money in a US regulated bank, there are basically two places that can end up: - on deposit at the Fed, in the account of a Fed member bank (which could be your bank, or a bank your bank has an account at) - loaned out by your bank (or again, a bank your bank uses) The Fed, so far, has refused to allow new member banks (eg that could deposit at the Fed) that don't intend to ever loan out deposits. They would take all customer deposits and stick them at the Fed. Many (most? the ones at the Fed anyway) think allowing this would siphon away money that would otherwise be used to make loans. They are, in effect, putting their finger on the scale to push you to allow your savings to be used as loans. The rise of Private Credit, where wealthy individuals and institutions loan money to private firms for to fund loans is the new thing that could break this open. These arrangements are long term, the customer can't "call" the money back, they are committed, and (for the most part) their commitment matches the duration of the loans. So there can be no bank runs. And the people providing the money know what they are doing. Levine is mostly arguing that with so much money in private credit, we could do without forcing small savers to fund loans.
- bpt3 8mo ago
  Yes, I understand all of this. What I don't understand is why the Fed "putting their finger on the scale" (which I don't dispute they are doing, as it's part of their job) is a problem, and I still did not really pick up on Levine arguing for or against this, just saying (this is me paraphrasing, not intended to be a direct quote) "we could operate differently in theory due to all these alternative lenders that now exist in parallel with the traditional, regulated banking system, which would have some benefits and some drawbacks." I can see some upsides (in addition to matching bank creditor and debtor duration expectations), like the implication that it would be easier in some sense to safely manage large amounts of cash because said cash is invested in T-bills instead of who knows what, but there are some obvious downsides as well concerning risk management. To quote Levine directly here, "How will the NDFIs find an extra $100 of loans to make? One obvious possibility is by making much worse loans. Another is by making fake loans."

by bpt3 8mo ago

lokar 8mo ago

When you deposit money in a US regulated bank, there are basically two places that can end up: - on deposit at the Fed, in the account of a Fed member bank (which could be your bank, or a bank your bank has an account at) - loaned out by your bank (or again, a bank your bank uses) The Fed, so far, has refused to allow new member banks (eg that could deposit at the Fed) that don't intend to ever loan out deposits. They would take all customer deposits and stick them at the Fed. Many (most? the ones at the Fed anyway) think allowing this would siphon away money that would otherwise be used to make loans. They are, in effect, putting their finger on the scale to push you to allow your savings to be used as loans. The rise of Private Credit, where wealthy individuals and institutions loan money to private firms for to fund loans is the new thing that could break this open. These arrangements are long term, the customer can't "call" the money back, they are committed, and (for the most part) their commitment matches the duration of the loans. So there can be no bank runs. And the people providing the money know what they are doing. Levine is mostly arguing that with so much money in private credit, we could do without forcing small savers to fund loans.

bpt3 8mo ago
Yes, I understand all of this. What I don't understand is why the Fed "putting their finger on the scale" (which I don't dispute they are doing, as it's part of their job) is a problem, and I still did not really pick up on Levine arguing for or against this, just saying (this is me paraphrasing, not intended to be a direct quote) "we could operate differently in theory due to all these alternative lenders that now exist in parallel with the traditional, regulated banking system, which would have some benefits and some drawbacks." I can see some upsides (in addition to matching bank creditor and debtor duration expectations), like the implication that it would be easier in some sense to safely manage large amounts of cash because said cash is invested in T-bills instead of who knows what, but there are some obvious downsides as well concerning risk management. To quote Levine directly here, "How will the NDFIs find an extra $100 of loans to make? One obvious possibility is by making much worse loans. Another is by making fake loans."