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Let's change the reserve ratio requirement to a sliding scale with larger ratios required for larger deposit holding banks, we'd see large banks broken up natur

Let's change the reserve ratio requirement to a sliding scale with larger ratios required for larger deposit holding banks, we'd see large banks broken up naturally to take advantage of the better investment deals by being small. The FTC might be appropriate now, but we need to stop being so reactionist.

cma 17y ago
That would just make things worse. Systemic risk would be discounted by the new, smaller banks even more since. If you do something to increase the risk of everything falling apart and you make up 30% of everything, you discount the real cost of the risk by 70%. If you are only 5%, you discount the risk by 95%.
- nickpinkston 17y ago
  It seems you're saying that small banks would be riskier because they have less influence overall in the market. I'm sure the JPMs of the world do take such risks into account, however I find it hard to believe that this consideration is greater than the negative effects of a moral hazard of bank bailouts. Vis-a-vis - the larger the bank the more its failure would affect the economy as a whole (hence the Fed / Tres. would bail them out, which was widely recognized) & also they have a higher concentration of lobbying funds and ability to collude. I see my reserve ratio change as a definite net gain.
dantheman 17y ago
Let's make the reserve ratio 100% if any other business did what banks did they'd be prosecuted for fraud.
- mediaman 17y ago
  And no business should ever get a loan?
  - dantheman 17y ago
    You can have loans without a fractional reserve system.
    - m_eiman 17y ago
      E.g. http://en.wikipedia.org/wiki/JAK_members_bank http://en.wikipedia.org/wiki/JAK_members_bank
      - mediaman 17y ago
        I read through the link a few times and it seems not to support your point at all. This bank is not actually a ful-reserve bank; they still issue loans, and therefore the deposits immediately available are less than the total deposits owned by customers. They just replace "interest" with "savings points" in an attempt to address the perceived evils of usury. Like Sharia-compliant banking, it's a deceitful shell game of syntax to comply to the letter of a principle. Can someone explain how a bank can issue a loan and still maintain 100% of its deposits in cash on hand? A full-reserve bank merely becomes a storage business for a customer's cash; there can be no loans.
- philwelch 17y ago
  Actually, they would be prosecuted for banking without following the relevant regulations. That's like saying, "if any other professional did what proctologists do, they'd be prosecuted for sexual assault".
  - dantheman 17y ago
    If you put gold in wharehouse and they say that you can retrieve it at anytime, and then turn around and give it to others -- how is that not fraudulent? It only works because they hope that not everyone will demand their gold back at the same time, so they can give you other peoples gold. My issue is only with demand deposits; if you put the money in an account like a CD where you agree to take it out in X amount of time, then they can lend it out.
    - philwelch 17y ago
      Your argument seems to hinge on the idea that nobody knows about fractional reserve banking. The fact is, not only is it well-known and fully regulated that banks use fractional reserves, but there is even FDIC insurance and similar programs to guarantee the safety of deposits. Now, if there was a legally regulated system where you could do fractional reserve banking of gold, complete with a government insurance program, then it would be perfectly fine and not fraudulent at all. As it turns out, no countries have a gold standard anymore. Comparing some guy with a warehouse of gold who doesn't tell you what he's doing with a publicly insured and regulated system with published reserve ratios is not a particularly honest or fair argument.
      - dantheman 17y ago
        I'm arguing against fractional reserve banking, and the continued bailout by the government of banks - FDIC is bankrupt and will need tax dollars or new dollars (inflation). Also, I wasn't using gold because I'm advocating a gold standard (even though I do), I used it because it can be used as substitute for dollars in the example. The problem we were discussing was one of the points from the article: "requiring higher capital ratios on larger banks to ensure the firms’ safety" I was advocating that instead of tinkering with this system, we should fix it. Just because the something is legal and "well regulated" doesn't mean that it is not fraudulent.

cma 17y ago

That would just make things worse. Systemic risk would be discounted by the new, smaller banks even more since. If you do something to increase the risk of everything falling apart and you make up 30% of everything, you discount the real cost of the risk by 70%. If you are only 5%, you discount the risk by 95%.

nickpinkston 17y ago
It seems you're saying that small banks would be riskier because they have less influence overall in the market. I'm sure the JPMs of the world do take such risks into account, however I find it hard to believe that this consideration is greater than the negative effects of a moral hazard of bank bailouts. Vis-a-vis - the larger the bank the more its failure would affect the economy as a whole (hence the Fed / Tres. would bail them out, which was widely recognized) & also they have a higher concentration of lobbying funds and ability to collude. I see my reserve ratio change as a definite net gain.

dantheman 17y ago

Let's make the reserve ratio 100% if any other business did what banks did they'd be prosecuted for fraud.

mediaman 17y ago
And no business should ever get a loan?
- dantheman 17y ago
  You can have loans without a fractional reserve system.
  - m_eiman 17y ago
    E.g. http://en.wikipedia.org/wiki/JAK_members_bank http://en.wikipedia.org/wiki/JAK_members_bank
    - mediaman 17y ago
      I read through the link a few times and it seems not to support your point at all. This bank is not actually a ful-reserve bank; they still issue loans, and therefore the deposits immediately available are less than the total deposits owned by customers. They just replace "interest" with "savings points" in an attempt to address the perceived evils of usury. Like Sharia-compliant banking, it's a deceitful shell game of syntax to comply to the letter of a principle. Can someone explain how a bank can issue a loan and still maintain 100% of its deposits in cash on hand? A full-reserve bank merely becomes a storage business for a customer's cash; there can be no loans.
philwelch 17y ago
Actually, they would be prosecuted for banking without following the relevant regulations. That's like saying, "if any other professional did what proctologists do, they'd be prosecuted for sexual assault".
- dantheman 17y ago
  If you put gold in wharehouse and they say that you can retrieve it at anytime, and then turn around and give it to others -- how is that not fraudulent? It only works because they hope that not everyone will demand their gold back at the same time, so they can give you other peoples gold. My issue is only with demand deposits; if you put the money in an account like a CD where you agree to take it out in X amount of time, then they can lend it out.
  - philwelch 17y ago
    Your argument seems to hinge on the idea that nobody knows about fractional reserve banking. The fact is, not only is it well-known and fully regulated that banks use fractional reserves, but there is even FDIC insurance and similar programs to guarantee the safety of deposits. Now, if there was a legally regulated system where you could do fractional reserve banking of gold, complete with a government insurance program, then it would be perfectly fine and not fraudulent at all. As it turns out, no countries have a gold standard anymore. Comparing some guy with a warehouse of gold who doesn't tell you what he's doing with a publicly insured and regulated system with published reserve ratios is not a particularly honest or fair argument.
    - dantheman 17y ago
      I'm arguing against fractional reserve banking, and the continued bailout by the government of banks - FDIC is bankrupt and will need tax dollars or new dollars (inflation). Also, I wasn't using gold because I'm advocating a gold standard (even though I do), I used it because it can be used as substitute for dollars in the example. The problem we were discussing was one of the points from the article: "requiring higher capital ratios on larger banks to ensure the firms’ safety" I was advocating that instead of tinkering with this system, we should fix it. Just because the something is legal and "well regulated" doesn't mean that it is not fraudulent.