Could the Glass-Steagall Act prevented the 2008 banking crisis?
We don't know. Glass Steagall Act doesn't really deal with the fundamental problem with 2008, which was at its core an error in measuring potential risk of new finantial products. It could have prevented some of the worst impacts of that error, but we're not sure. Here's quote from former Federal Reserve Vice Chairman Alan Blinder: "What bad practices would have been prevented if Glass-Steagall was still on the books…
Wouldn’t Glass Stegall have made mortgage backed securities difficult if not outright impossible to create?
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…
In addition to the fee they are leveraging your deposits - and European banks are no less risky for the depositor than the US ones (just look at the 2008 era). Having a 'true bank' that does not leverage your money and has no investment risk would probably be useful to a certain segment of people but the assets would still have counterparty risk and everything else so in the end a very niche market since the best way to handle risk is to distribute to multiple counterparties, currencies, etc... and then you might as well get the interest from the money at that point since you've de-risked so much already.
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…
You can already do that by buying a money market fund no?
To the best of my understanding you can’t initiate payments with a money market fund using, say direct debits or visa/Mastercard. So they can’t replace an ordinary bank account.
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…
This is a concept called a Narrow Bank. Basically it’s a bank that puts all its deposits directly with the Fed. There have been attempts to start such a bank in the past and they have been denied a banking charter.
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…
>The bank also needs to pay the loan back by an agreed uppn time (which destroys the money). Perhaps you can clarify by what you mean by 'destroyed'. To my knowledge once the bank has 'created' the money it will always exist in the system. However it has devalued all other money by a small amount which we understand today as 'inflation'. So it's not clear to me what you mean by destroyed.
“High-powered money” is that which is created when the central bank lends to commercial banks. As it is a claim on the central bank’s assets, when it is returned to them it ceases to exist (as the central bank doesn’t need extra paper to dispose of its own assets).
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…
After some internet searching, apparently CBDC means "Central Bank Digital Currency"
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…
central banks could offer 100% guaranteed deposit facilities without a CBDC.
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?!
There are things called Government Savings Banks. The UK has National Savings and Investments (NS&I [1]), which allows individuals to save money with unlimited protection (though I think their accounts typically allow maximum amounts of a few million pounds). The UK government uses this as a form of raising money. I believe other countries have similar schemes.
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…
>The bank also needs to pay the loan back by an agreed uppn time (which destroys the money). Perhaps you can clarify by what you mean by 'destroyed'. To my knowledge once the bank has 'created' the money it will always exist in the system. However it has devalued all other money by a small amount which we understand today as 'inflation'. So it's not clear to me what you mean by destroyed.
The destruction mechanism is the same as the creation mechanism but in reverse.
An asset is removed from the lendee in the form of a debit against their deposits thus destroying outstanding cash.