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Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

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Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#81

Post by Ericson2314 »

yalogin wrote: post #74

Who is gong to provide the account services in this scenario? I suspect if the Fed is supposed to do it, they will outsource it to regular banks which will then add on restrictions, fees and other hurdles there by making it the same as today's bank accounts.

We could have free file -like debacle, but that would be an intentional backstabbing by the part of Congress.

What so say is not a natural phenomenon: the government isn't so stupid as to unintionality write a contract so vague that the recipiant can just renk sneak all the want.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#82

Post by Ericson2314 »

thoughtstheseus wrote: post #62
freeone3000 wrote: post #51

Earlier quoted context omitted.

This appears to be a banking account and a payment processing system, and not actually giving any money to individuals above the standard index interest rate (which is already given out, but retail banks take their cut).

This system would make the execution of helicopter money policies trivial. Good or bad?

Definitely good.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#84

Post by Qworg »

DobryMorozov wrote: post #83

So who would be making consumer and commercial loans under this model?

In these proposals (which with the new CBDC furor going on are more common again), it would look a lot like China. The central bank would pick the "Agriculture Bank" or the "Industrial Bank", and hand over a set of deposits to enable loans. Hardly a model for success.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#86

Post by nendroid »

neffy wrote: post #75
dathanb82 wrote: post #73

Earlier quoted context omitted.

I don't think I agree with your definition of "robust" in this context. A bank that only writes loans and doesn't have deposits must be lending out its own assets. In that case, they don't have a reserve, because the assets they're using to back their loans aren't liabilities, and aren't subject to runs. The reserve ratio is there precisely because banks are loaning out deposits, and deposits are liabilities. If a cr…

The reserve ratio (which in most places is now down to 2% or less), is there to prevent runaway monetary expansion through lending/deposit creation. The Central Bank's role as lender of last resort is the backup for bank runs. In the event of a run, a bank is considered illiquid, an insolvent bank is one where losses on debts exceed loss provisions and capital. An entity that only wrote loans, and didn't have deposit…

The reserve ratio is currently zero percent.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#87

Post by HaloZero »

You could probably just keep interchange fees on debit card transactions and still a lot of the other benefits. It would help pay for the services and support and make the banks less suspect that everyone would switch over.

I imagine the underbanked and unbanked individuals that would want this service aren't actually craved by the private banks right now.

Building out an ATM network though would probably be ridiculously expensive. You could probably just build them into the USPS though. I think Japan does this?

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#88

Post by atq2119 »

neffy wrote: post #75
dathanb82 wrote: post #73

Earlier quoted context omitted.

I don't think I agree with your definition of "robust" in this context. A bank that only writes loans and doesn't have deposits must be lending out its own assets. In that case, they don't have a reserve, because the assets they're using to back their loans aren't liabilities, and aren't subject to runs. The reserve ratio is there precisely because banks are loaning out deposits, and deposits are liabilities. If a cr…

The reserve ratio (which in most places is now down to 2% or less), is there to prevent runaway monetary expansion through lending/deposit creation. The Central Bank's role as lender of last resort is the backup for bank runs. In the event of a run, a bank is considered illiquid, an insolvent bank is one where losses on debts exceed loss provisions and capital. An entity that only wrote loans, and didn't have deposit…

The reserve ratio is mostly a historical relic and is zero in many places, yet those places don't see an infinite amount of money.

This indicates that the traditional story of how fractional reserve banking causes money growth is wrong.

In reality, even a non-zero reserve ratio doesn't limit money creation if you look at the financial system as a whole, because the created money will simply become deposits elsewhere.

The true limiter of money creation is capital constraints: somebody must give money to the bank and be willing to lose it - only then is the bank allowed to make loans.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#89

Post by atq2119 »

RobertoG wrote: post #38
closeparen wrote: post #31

Earlier quoted context omitted.

Customers expect to have use the of the money they deposit with you, so once you take deposits you are the payment system. “Robust banking system” is inherently tied to reserve ratios, or having the deposits on hand to cover the loans you’re writing. A bank that only writes loans and doesn’t have deposits is the opposite of robust. If any bank gets to do this it would be the central bank. Payment facilitation is less…

>>"A bank that only writes loans and doesn’t have deposits is the opposite of robust." Maybe they are, but modern private banks already do that. Before a bank concede a credit it's just checking if it's a good business, not if it has enough deposits or enough reserves. When giving a credit, banks, are, basically, creating money that it's destroyed when the debt is payed. A posteriori of giving the credit, the bank wi…

To complete the picture, it's helpful to point out that what banks need to create loans is capital, not deposits.

If a bank is constrained by the Basel capital requirements, it can e.g. attempt to issue bonds. If it does so successfully, it can then create new loans corresponding to a multiple of the value of those bonds.

Re: Central Banking for All: A Public Option for Bank Accounts (2018) [pdf]

#90

Post by yholio »

jimbob45 wrote: post #32
yholio wrote: post #17

Banks as private middlemen providing society with a payment system is an outdated and baroque system. Today, the whole payment system of an average nation can work over a single cluster of computers in the basement of the central bank, there is absolutely no reason not to provide this service for free to all citizens and businesses since it's a critical part of living in a society. The whole superstructure of banks,…

>Some resources should be spent on preventing laundering and fraud with the system, but this needs to be done in the banking system as well, with the costs passed on to the consumers. I feel that you glossed over the most important part of credit card companies. I would say 100% of the reason I have a credit card is their diligence in preventing and solving fraud on my account. I would imagine the same to be true for…

It's debatable if this should be a lumped and mandatory feature of the payment system. For all in-person transactions, payments should be non-refundable and any fraud should be considered a technical weakness. This concurs with the longstanding tradition of paper money, with consumer protection handled off-line by adequate agencies, the courts etc. What currently happens is that credit card users enjoy a separate layer of protection that is subsidized by other consumers - debit and cash users - that pay the same nominal prices. Due to the credit card oligopoly, retailers are forced to do this since rejecting one of the major card issuers means forfeiting a large part of the revenue.

For remote transactions, aside from discontinuing the absurd practice of treating numbers printed on a card as secret authentication data, thereby reducing fraud manifold, we could have a unified system where consumer protection is offered by a 3rd party. For example, before you are allowed to shop online using your central bank account, you must select a private payment processor such as PayPal, Revolut etc., and agree to their terms and fees, and they in turn would handle charge-backs for remote transactions.

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