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Bank failures come in waves

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Re: Bank failures come in waves

#111

Post by sumedh »

sgsag33 wrote: post #90

Why do we even need banks? If they make money by lending money that mostly belong the people (state/feds) anyways, I guess we all would be better if banking was just a state monopol. I guess I'm just missing some points here so maybe someone can help and explain me why this is a bad idea?!

> If they make money by lending money that mostly belong the people (state/feds) anyways,

Naa most of the loans are not using other people's money, banks just create money out of thin air (aka put a record in some database table) and that entry is your loan money.

Re: Bank failures come in waves

#112

Post by makomk »

imtringued wrote: post #84
rocqua wrote: post #77

Earlier quoted context omitted.

It's not quite right that banks don't loan out their depositors money. They need depositors to be able to make loans. Stashing depositors money at the Fed keeps the bank from making loans. Stashing money at the Fed is possible by the way, and effectively does destroy the money (or rather, takes it out of the economy). Banks can deposit money at the Fed earning exactly the interest rate that the Fed controls. This eff…

>They need depositors to be able to make loans I've never asked my loans to be paid out in cash or transferred to another bank. When people say commercial banks create/issue money they mean that cash/central bank reserves have become irrelevant other than as a rudimentary payment method or network to transmit between banks. If you wanted to make the point that banks lends existing deposits you would have to basically…

Presumably you didn't just keep that money sitting in your own bank account though - you used it to buy something or pay someone, and their account was often at another bank. If a bank issues too many loans where the money ends up at other banks without counterbalancing transfers of money in, it eats away at the reserves they have available to settle those transfers with and that's how deposits actually limit banks' ability to make loans. The Bank of England article that someone linked further down explains this in more detail (page 18 in the PDF): https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

Re: Bank failures come in waves

#113

Post by bee_rider »

freeone3000 wrote: post #108
bee_rider wrote: post #42

Earlier quoted context omitted.

Interesting. So is the coverage cap actually accomplishing much?

It spreads risk throughout the system. In a maximally-resilient scenario, everyone would have a small deposit at every possible bank -- then when any bank fails, it's "no big deal", and you won't panic and withdraw your money from the rest. This is similar -- any particular failure is going to be for half (or less!) of your money, instead of all of it, reducing the urgency and spreading out the risk.

Ah, that’s interesting. So spreading the accounts across multiple banks is essentially accomplishing the goal of the program.

Re: Bank failures come in waves

#114

Post by makomk »

fuoqi wrote: post #53
the_optimist wrote: post #51

Earlier quoted context omitted.

This is outright incorrect. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

What exactly is incorrect in my explanation? Are you saying that bank's liabilities can exceed its assets for a prolonged time? Or that reserves at a central bank do not pay interest? The second order effects (such as loan at one banks creates deposit at another, meaning M2 gets essentially "printed"), which are important for monetary policy and regulation, are not relevant when we view operation of a bank in isolati…

Creating loans and the money associated with them out of thin air doesn't cause the bank's liabilities to exceeed its assets though: they're simultaneously creating an asset (the loan) and a liability (the money deposited from the loan) which exactly cancel out.

Re: Bank failures come in waves

#115

Post by d1sxeyes »

vishnugupta wrote: post #95

Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks. Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that p…

Most EU banks have always charged a fee for maintaining deposits (at least for private individuals).

In the UK, banking is normally free, but on the continent, you normally pay for the account itself and any cards you may hold. Some banks may offer fee waivers for those whose salaries get paid into the account, or if you have a cardless account etc, but it is fairly common practice to charge a small fee for the bank account itself.

Re: Bank failures come in waves

#116

Post by JDEW »

spacebanana7 wrote: post #109
vishnugupta wrote: post #95

Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks. Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that p…

A hybrid solution could be a grade of bank accounts whose deposits are backed 1:1 by short dated government debt. You get most of the safe custody benefits of CBDC whilst minimising the costs of restructuring the banking system. Customers could still use all the same banking apps and branches. Such a program could even be eased in over time by steadily increasing the proportion of bank balance sheets allocated to sho…

Narrow banks. The FED didn’t like the idea…[0]

[0] - https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-...

Re: Bank failures come in waves

#117

Post by frozenwind »

vishnugupta wrote: post #95

Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks. Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that p…

CBDC is a another puzzle piece of a future dystopia. We're exchanging freedom for the sake of a security façade.

Re: Bank failures come in waves

#118

Post by andrepd »

zizee wrote: post #41

From what I understand, when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank (on behalf of the fed), and the bank needs to pay the fed interest. The bank also needs to pay the loan back by an agreed uppn time (which destroys the money). Why can we not have a similar system for deposits? A bank takes a deposit, the fed "destroys" the money, but pays interest…

> when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank (on behalf of the fed), and the bank needs to pay the fed interest. The bank also needs to pay the loan back by an agreed uppn time (which destroys the money).

Why can't I do that with the central bank directly? Why the rent-seeking middleman?

Re: Bank failures come in waves

#119

Post by i67vw3 »

kzrdude wrote: post #106
vishnugupta wrote: post #95

Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks. Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that p…

In the US there used to be the Glass-Steagall Act "effectively separating commercial banking from investment banking"; established in 1933 but it was partly repealed in 1999.

Could the Glass-Steagall Act prevented the 2008 banking crisis?

Re: Bank failures come in waves

#120

Post by cflynnus »

vishnugupta wrote: post #95

Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks. Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that p…

Thinking CBDCs are “safe” is extremely naive. They’re a dystopian nightmare. They’re every dictators wet dream. This is why Bitcoin matters. Bitcoin = freedom.
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