His idea is ridiculous. If I were to put money in a bank like this it would cost me, because I'm not getting the interest another bank would pay me and inflation would devalue my balance every day it sits there. That's not "safe" for the customer at all.
Starting a Bank
21–30 of 68 posts
Re: Starting a Bank
#22People don't care about the safety of their bank because of the FDIC, but they do care about interest rates. Rival banks will be able to offer higher returns because they will be earning higher, riskier investment returns.
Moreover, with a lower return on equity modeled in than every other bank in the industry, nobody is going to give you money to start with.
Lastly, there are severe limits to how innovative you can be with a bank, again because of the FDIC.
The only way I see this gaining any traction is as a niche bank for people with deposits over the FDIC insured limit who might want a little more safety. However, there are two problems with this. 1) He proposes to turn away deposits of this size at first and 2) people with that much money usually have better options.
Re: Starting a Bank
#23This reminds me of the wonderful theoretical country discussions we had in my economics classes at college.
Forget a new kind of bank. Go total bluesky. What IF, we could design our own set of sovereign laws and principles.
What would the "modern" country look like?
Re: Starting a Bank
#24"We take your money and put it in a vault" That's not actually the job of a bank, is it? The job is to mediate lending and borrowing of money. By identifying the right people to lend money to, banks can offer the people whose money the take an interest rate. I still agree that there is a market for a better bank. I remember an example from the book "Why not?" where a bank (or something like that) offered to automatic…
Well why not differentiate the product by allowing the bank customers choose where the money is getting invested, kiva-style. And yes, there is a ton of risk there but it's unique.
That seems counterproductive. I give my money to the bank precisely because I don't want to bother with estimating borrower credibility myself. Also, as an individual I can not hedge my risk well enough, because I don't have enough money to spread it out effectively.
Re: Starting a Bank
#25The problem with the "Bank Safe" slogan is that the FDIC exists.
This. No one lost money by depositing their money with goldman sachs (they were not a deposit accepting institution). People lost their money speculating on stock and real estate. Having their money in a slightly safer bank would not have helped.
Re: Starting a Bank
#26Sounds like he wants to start a full-reserve bank: https://secure.wikimedia.org/wikipedia/en/wiki/Full-reserve_... Not impossible - after all, banks were not always fractional-reserve, and it admittedly is a very secure form of banking.
Not full, just a higher fraction.
Since he wants to keep accounts below the FDIC limit, there's really no incentive for him not the hit the markets aggressively, trying to make a nice interest for his customers.
Re: Starting a Bank
#27"We take your money and put it in a vault" That's not actually the job of a bank, is it? The job is to mediate lending and borrowing of money. By identifying the right people to lend money to, banks can offer the people whose money the take an interest rate. I still agree that there is a market for a better bank. I remember an example from the book "Why not?" where a bank (or something like that) offered to automatic…
"That's not actually the job of a bank, is it?" (re: money -> vault) Well, from a customer point of view, it is, more or less. Most people are not picking a bank because of the interest rate it offers, they're picking it because they need to be able to write checks, use a debit card, make payments, etc. Anyone that's serious about growing their money is not opening a Bank of America savings account, they're using a r…
There are many "internet-only" bank accounts in the US that reimburse you for ATM fees. I use http://www.salemfivedirect.com/ , which reimburses up to $15 of ATM fees per month, and Etrade bank does something similar. Being free to totally ignore ATM fees is really nice, and because internet banks are competing for customers that are likely more mobile and savvy than local branch banks, odds are the customer service is better.
It is also possible to deposit checks by scanning them and uploading the check image; one of my friends does that for her personal account.
Re: Starting a Bank
#28The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money? You can't. You'd, in fact, have to levy fees to cover the costs of staffing, buildings, security, etc. Yes, even an internet bank has to have physical infrastructure somewhere. Heck, why am I going to spend $3 for a SafeBank iPhone app when I can access…
His head is in the clouds. Although, the idea of starting a bank in the middle of a downturn is not bad. People are saving more money than usual right now (cheap capital), and many businesses are desperate for loans. The trick is to weed out the failing businesses, and loan to the ones strong enough to last the downturn. As always, easier said than done...
If anyone out there is looking for a "nice" bank, you're much better off with a credit union. Credit Unions are by definition customer focused.
Re: Starting a Bank
#29The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money? You can't. You'd, in fact, have to levy fees to cover the costs of staffing, buildings, security, etc. Yes, even an internet bank has to have physical infrastructure somewhere. Heck, why am I going to spend $3 for a SafeBank iPhone app when I can access…
"The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money?"
Except that he said this:
SafeBank would maintain a reserve level 2-3x higher than Fed requirements and any other bank.
What he's saying is this. SafeBank would be less risky and could spend a LOT less money. Revenue would be lower, but he's saying that spending at financial institutions is nigh ridiculous and could more than compensate for it.
"And he hasn't satisfied the most important question: how would this be better than a member-owned credit union?"
How is that the more important question? What if it was just as good as a credit union?
How much better is Starbucks? I think 80% of what he's talking about is a marketing opportunity.
Re: Starting a Bank
#30The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money? You can't. You'd, in fact, have to levy fees to cover the costs of staffing, buildings, security, etc. Yes, even an internet bank has to have physical infrastructure somewhere. Heck, why am I going to spend $3 for a SafeBank iPhone app when I can access…
"The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money?" Except that he said this: SafeBank would maintain a reserve level 2-3x higher than Fed requirements and any other bank. What he's saying is this. SafeBank would be less risky and could spend a LOT less money. Revenue would be lower, but he's saying tha…
>SafeBank would maintain a reserve level 2-3x higher than Fed requirements and any other bank.
Which, for the record, isn't full-reserve (the legal limit is 900% leveraging... i.e., if I deposit $10, the bank can loan $90 off of that). He'd still be loaning out money he doesn't have, and he'd still be able to generate revenue from that.
In the case of full-reserve banking, you can still make money. You may not be able to offer FREE CHECKING and free x x x x blah blah blah, but with the interest accumulated from your loans, a decent amount of working capital, and fees from accounts it's definitely conceivable.