61–70 of 259 posts
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Fed hates that and fights this tooth and nail. See, for example: https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-... https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-ban...
Crazy. How did the story with narrow bank end?
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Your comment seems pretty unserious, but modern monetary theory ( https://en.wikipedia.org/wiki/Modern_Monetary_Theory ) adherents assert that the point of taxes is not to "fund" anything, but to engineer incentives, redistribute wealth, and remove excess money. And that, yes, we should simply print money, to the extent that we need to, subject to the constraint that excess money causes inflation in specific circumst…
Hum... I only disagree that people keeping calling it "modern". The actually modern theory has a much more complex lifecycle for money. Yep, government spending creates it, and taxing destroys it, but between all the kinds of money and the entities that can create them, it's not automatic that the government numbers are the important ones.
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Managers might have been fired and equity wiped out but they still have all the rent and bonuses that were extracted during the high risk high reward activities. That’s why it’s a morale hazard and the fed taking over it doesn’t solve it.
I don't see how letting the depositors get hosed while the bank gets taken over is any better than bailing out the depositors. Either way, the rents have been extracted. Why does the $250k limit make a difference to bank management behavior?
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Fed hates that and fights this tooth and nail. See, for example: https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-... https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-ban...
Crazy. How did the story with narrow bank end?
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…
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.
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Hmm. Would it be easy nowadays to just have a software service that split up an account into n accounts of less than $250k, and then presented a single interface to all of them? I guess individual purchases over $250k would be a problem, but I guess a short-term gather operation could be ok, as long as you aren’t too worried about a bank run while that transaction was occurring.
See, for example, Fidelity's FDIC-Insured Deposit Sweep Program. https://accountopening.fidelity.com/ftgw/aong/aongapp/fdicBa... >To provide you with the benefit of FDIC insurance eligibility, the cash balance in your account will be automatically swept into an interest-bearing FDIC-Insured Deposit Sweep position. Since FDIC insurance coverage is currently limited to $250,000 per qualified customer account per bankin…
https://mercury.com/blog/company-news/understanding-bank-swe...
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Fed hates that and fights this tooth and nail. See, for example: https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-... https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-ban...
Crazy. How did the story with narrow bank end?
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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…
Banks operate by discount. You take a thing to the bank, the bank values it and then a financial asset is created which the bank buys by creating an advance of its own liabilities against it. The bank then books the assets (the mortgage) against the advance. The bank's balance sheet is expanded.
The individual then 'pays' people with the advance - which does nothing other than change the ownership on that advance. When the payment process is complete we stop calling it an advance and start calling it a deposit.
You don't even need somebody else's money to start a bank. The Bank of England was started by issuing shares to subscribers and booking them on the asset side as nil paid.
A deposit 'moving' to another bank is really the destination bank taking over the deposit in the source bank, or delegating that to the central bank via a centralised clearance process.
Bank capital, either equity or notes, is convincing somebody with a deposit to swap it for another liability that has less security.
Much of the problems we have with banking and the view against it is because of the persistence of the Monetarist view that they pick up bag of coins from somebody and pass them on to somebody else. There are no bags of coins, and there is no passing them on. Never has been, never will be.
Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.
While it may be difficult to see things this way, when you put money into a bank, you’re choosing to not invest that money into something else that might generate a better return for you and for society. The small but real risk of losing your deposits in a bank encourages companies and people with money to invest it into other things. If there is no default risk, then money will be increasingly stored away inside ban…
I'm surprised that belief still persists.
The counter to that, of course, is that the silly instability in the banking system we're now seeing worldwide will destroy risk taking as people scramble to protect their positions.
Look at the damage to stock market valuations. How many banks are thinking about creating loans at the moment?
Banks provide liquidity against real things by creating money. They don't invest, and they don't take in money. All they do is shuffle their balance sheet to try and improve their net interest margin.
This idea that banks will suck up all the money is yet another consequence of thinking about banks backwards. There isn't, and never has been, a fixed amount of money.
Just as you get fancier trapeze moves if you have a safety net installed, you get far more risk taking when the basics operate correctly, safely and without having to think about them.