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America will soon see a wave of bank mergers?

economist.com

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Re: America will soon see a wave of bank mergers?

#161

Post by ptero »

oarsinsync wrote: post #113
bradleyjg wrote: post #92

Earlier quoted context omitted.

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 wha…

> 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…

> 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.

The problem with this business model is that this 4% interest either (A) requires a certain hold period or (B) allows on-demand withdrawal.

(A) is exactly the model used today. It did not stop the collapse SVB and FRC. Assets that require a certain hold, such as Treasuries held by SVB and mortgages held by FRC, fluctuate in price. If those assets drop in price (as recently) and bank's customers withdraw money, the bank is in a pickle.

(B) moves banking into one real bank -- the government. This can be done (e.g. in the Soviet Union), but comes with a lot of limitations and challenges. It is also not something you can morph the current system into; this is a "break, then rebuild" path and is very painful. I would personally move money away if I see a whiff of this in the air. My 2c.

Re: America will soon see a wave of bank mergers?

#162

Post by lcnPylGDnU4H9OF »

kornhole wrote: post #158
omgomgomgomg wrote: post #152

Why exactly should banks be private companies at all? Theyre just skimming middle man between the government and end consumer. Sure, the government would know your bank balance and spendings, but that could be worked around If youre in trouble with the irs or the law, the government will have all the insight they request. Sounds crazy? We the people had to bail them out and never get anything of their profits. Too bi…

Yes banks should be better regulated to avoid letting them make risky moves. That aside, many regional banks rather than a centralized government controlled bank is critical to our freedom. Government controlled banks or CBDC will give government total surveillance and control over us since you cannot do much without money.

In the US, a government-controlled bank would have stronger privacy because privacy is enshrined in law. Specifically my government cannot snoop on certain things.

If the government kept all of my banking records, they wouldn't be able to legally access them. Currently, they can just use taxpayer money to purchase these records from the corporations who gather them.

Re: America will soon see a wave of bank mergers?

#163

Post by stefncb »

NikolaNovak wrote: post #48
cyclecount wrote: post #2

All of the rules put in place after 2008 are being ignored; the number of banks in the US pre-2008 financial crisis was about 31k. Now there are close to 3000. After this wave of mergers, there might be around 1000! And a few will be so large that they can make insane bets, betting on risky and novel new investment vehicles that will (maybe initially) pay off handsomely before ultimately failing dramatically. This wi…

As an outsider, can you help me put your post in context - is 31k banks posit as good or bad state of things? (it seems an insane state of things to me, with incredible overhead and inefficiency but again, I'm an outsider. I've lived in USA for a while in late 90s and state of banking from consumer perspective in USA seemed a decade behind Canada and Europe, but that was a long long time ago)

I see less banks as being strictly worse. It's the same as with any other company. Yes that's less efficient, but it's the only way to prevent individuals from having too much power. Because almost anyone with that kind of power will eventually give in. Just look at tech companies; I, for one, am not satisfied with the status quo.

There are two ways to have a functioning society. One is to have very few very powerful people, and only choose the right leaders. The other is to have very many people with very little power. That's less efficient, but it's also much less risky.

We currently run on the first. It's not going well. I'm not aware of a time when we ran on the second. In my mind that's the only way.

Re: America will soon see a wave of bank mergers?

#164

Post by JohnFen »

kiawe_fire wrote: post #154
JohnFen wrote: post #142

Earlier quoted context omitted.

> The government and those who work for them are not your friends. Neither are corporations. Both will abuse you. The difference between the two is that you have at least a chance of altering how government works, but you have no chance with a corporation.

They both have highly imperfect avenues with which we can exert influence, but one has more power to compel you to support them legally “or else”.

> one has more power to compel you to support them legally “or else”.

I think that they both have approximately equal power to do that.

Re: America will soon see a wave of bank mergers?

#165

Post by bootwoot »

oarsinsync wrote: post #113
bradleyjg wrote: post #92

Earlier quoted context omitted.

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 wha…

> 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…

That's exactly what Silicon Valley Bank did. While federal bonds are nearly risk free in terms of default, they still suffer from interest rate risk -- that is, they may lose significant value if interest rates rise. In the case of SVB, US treasury bonds lost enough value to make the bank insolvent.

Re: America will soon see a wave of bank mergers?

#166

Post by zaphod12 »

cyclecount wrote: post #2

All of the rules put in place after 2008 are being ignored; the number of banks in the US pre-2008 financial crisis was about 31k. Now there are close to 3000. After this wave of mergers, there might be around 1000! And a few will be so large that they can make insane bets, betting on risky and novel new investment vehicles that will (maybe initially) pay off handsomely before ultimately failing dramatically. This wi…

Where did you get these numbers? It's wrong and presents a misleading picture of a 10x implosion in 2008. There were never even close to 31k banks in the USA. It peaked at about 14k back in the '80s and has been going down ever since. It did drop precipitously after the 2008 crises, going from around 7K banks to today around 4500 banks, but this is a very far cry from 31k to 3k.

https://banks.data.fdic.gov/explore/historical?displayFields...

Re: America will soon see a wave of bank mergers?

#167

Post by citizenkeen »

golergka wrote: post #160
omgomgomgomg wrote: post #152

Why exactly should banks be private companies at all? Theyre just skimming middle man between the government and end consumer. Sure, the government would know your bank balance and spendings, but that could be worked around If youre in trouble with the irs or the law, the government will have all the insight they request. Sounds crazy? We the people had to bail them out and never get anything of their profits. Too bi…

There's no "should" because there's no high authority in humanity which decides what should and shouldn't exist. Banks exist because some people want to found banks and then other people want to use their services. The only way to prevent this from happening is to threaten violence or threat of violence to either of these people. The better question would be, why would anyone use violence to force his opinion on othe…

> The only way to prevent this from happening is to threaten violence or threat of violence to either of these people.

That's a weird view.

We could also just, you know, vote away banks. I'm not sure why a centralized bank would result in violence.

Re: America will soon see a wave of bank mergers?

#168

Post by 2OEH8eoCRo0 »

passwordoops wrote: post #20

I've said it before, I'll say it again - "too big to fail" should be recast as "too big to exist" I'm not sure what the best solution is here, but making the big banks even bigger is not it. This is just going to make the banking system more concentrated and no concentrated market is good for anyone. Least of all because the past decade+ has set the precedent that the banks will be bailed out... If they're big enough

It's a fuzzy boundary. I agree in theory but where is the line where something is too big? We encourage companies to grow as large as possible and hope that competition will provide the counter friction. The only fail-safe is the government trust busting on a case by case basis which might not be optimal.

Are there any regulations that could provide economic incentives to small businesses and make it increasingly difficult for large companies to grow larger? Wealth going in one direction is not a very stable system.

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