Beensabu wrote: ↑Sat Mar 18, 2023 3:24 pm
coachd50 wrote: ↑Sat Mar 18, 2023 2:45 pm
technovelist wrote: ↑Sat Mar 18, 2023 2:30 pm
I'm not sure why this is considered unthinkable. Maybe it's an educational problem because people don't know enough about the history of banking?
It isn't that it is unthinkable. It is that I do not believe that a custodial bank's model would be able to compete with the current commercial and retail banks to make it worthwhile. I don't think they would be able to garner enough customers willing to pay for the same services that others will give for free.
Yeah. Maybe it's just not a viable business model for banks. At least not in this day and age. The "sound" bank that technovelist previously banked with and has been referring to in this thread is from 30-40 years ago, with a name they can't remember, that was acquired.
As consumers, what do we want from banks? For our deposits to be secure, and for them to give us loans.
As investors, what do we want from banks? A return on our investment.
If the banking business weren't profitable, why would anyone choose to go into that business?
So really, the question is: Do we want banks, or do we not want them?
It's clear from some posts here, that some people don't want them (or at least, they think they don't want them).
But we do need them, don't we?
That's quite an unfair characterization of the desires of others. On the contrary, I'd say some people want a system that isn't prone to systemic crises and think the current rules exacerbate them.
Regarding viability, if the government provides a backstop for various banking risks, then any bank/depositor that isn't taking those risks is missing out on the government subsidy, making it uncompetitive. So we don't know what people would do in the absence of the government subsidy on risk taking. It's fair for you to point out that I don't know for sure, but you can't claim that you know either.
But it gets even worse. Recently, a group led by the former head of research at the New York Fed has been trying to establish a bank (called The Narrow Bank
) with the goal of being "a financial institution that issues demandable liabilities and invests in assets that have no nominal interest rate and credit risk." They would hold all deposits at the Federal Reserve, which now pays interest on those, making the business model even more lucrative than in a "free" market. The Fed has repeatedly dragged its feet and/or rejected the applications to sanction this bank (see The Safest Bank the Fed Won’t Sanction
, Fed Rejects Bank for Being Too Safe
). Again, I don't know for sure that the bank would attract enough depositors to stay in business, but I at least know that someone wants to try but is not even allowed to.
The Levine article even states "The New York Fed declined the account 'reportedly at the specific direction of the Board’s Chairman,' Jerome Powell. The Fed has not said what its objection is."
So the absence of such a bank is possibly due to government roadblocks as well as government subsidies on risk taking. It's purely speculation to say that a safe bank would be unprofitable without these things.