What about sperm banks then? I haven’t heard about too many of those making loans.
No, banks take deposits and then loan that money out. That is what banking is. The storage of money is a different service. Banks often provide this service as well.
An online digital currency is not a bank. It is an exchange system where people can use electronic currency backed by gold to buy and sell things. The system does not loan money. The system will charge a small fee on each transaction in order to maintain the system and provide a profit for the investors.
READ my posts BEFORE you reply. You’re reading them with preconceived notions and not paying attention. I agreed with you on every account.
You do realize that before banks were in the business of loaning money their #1 job was the storage of money and giving you little bits of paper as a receipt?
How do you think this whole FRB business started in the first place, someone just thought it would be a good idea and started taking deposits?
I can’t believe that I have to explain both the origin of banking and how FRB came about to someone who is so expert as yourself that you can say without a shadow of a doubt that FRB is a non fradulent activity.
It boggles my mind, it does…
Oh, so its a electronic checking account then?
You know, back in the day, they used to do that exact same thing. They would take your gold and store it while giving you a warehouse receipt that eventually traded the same as the gold that backed it.
It was pretty a popular system in Amsterdam around 400 years ago. They called it the Bank of Amsterdam…
Except that it doesn’t matter if you make good loans. Your fractional reserve bank will fail sooner or later anyway, even if never makes a single bad loan.
Yes. A properly-run full-reserve bank should be as risk-free as anything in life. It doesn’t matter if they make the occasional bad loan - that only affects the bank’s profit, not customer accounts.
They should (but not by engaging in fractional reserve shenanigans). FWIW, when 1MDC started they did offer a term loan that paid interest…
What? Cannot they default on time deposits?
You do realize storing money is different than lending money.
So exactly what is your problem with the idea. I do not think of banking as the storage of money. A company that only stores money is like a vault. Banks make money by lending money.
It is not possible to lend money and have 100% reserve. Banks make money by accepting deposits in exchange for services or interest and then loaning the money out. Default is always a risk with any bank. Just like there is always theft risk if you hire someone to store your money.
So what’s the point for the existence of the banker?
If the insurer knows best I would just loan my money to the insurer. In your world the banker is a prick who doesn’t know where his nose is and lives on the charity of insurance companies.
Where does the money come from to loan if not from customers? Lending money has default risk. If enough loans are bad then the default risk will pass directly to the people loaning the money to the bank, that is the customers.
I see no reason why insurance would be needed. People could bank with people based on reputation. I simply said that the deposits could be insured. Bankers specialize in putting borrowers and lender together. Insurance companies specialize in quantifying risk. People can specialize in what they are good at.
I see no reason why bank deposits can not be insured.
They’d have to be spectacularly bad at their jobs to make that a possibility.
But that’s not related to full reserves vs. fractional reserves. If a bank acts as a middleman taking loans from people who save and making loans to people who want credit, it is possible for the bank to make bad loans and lose its clients’ savings – of course such an inept bank wouldn’t stay in business for long.
There are lots of things that might cause default problems. It would be quite easy and normal for good banks that had been successful to make bad loans and go bankrupt. Businesses go bankrupt all the time, banks are no different.
You do realize that a demand deposit (storing money to be available ‘on demand’) is different than a term deposit (stored money to be lent).
Problem? No problem with the idea.
I’m just saying that calling your bank by any other name doesn’t change the fact that it’s a bank.
Wait, before you were saying that banks both store money and also loan money.
If they store money (demand deposit) but can’t lend that money because then they will not be able to fulfill their ‘on demand’ contractual clause then how exactly are they doing something that is ‘possible’ when the depositors show up to collect their money?
As you now admit that it is impossible to loan money that is available ‘on demand’ because of an implied 100% reserve backing it should also not be that big of a mental leap to realize that people who wish their money to be loaned out will deposit it into a term deposit which isn’t available ‘on demand’.
Let’s get back to your bank.
If you decided to loan out your clients’ deposits while claiming that the gold that was backing it was in your possession then that would be wrong, correct?
Now let’s say that you calculate that only a small percentage of your depositors ever redeem the electronic gold certificates for the actual gold and so it would be ‘good money management’ to produce a few others above and beyond your current stock of gold and sell these as if they had the full gold backing. This too is wrong, correct?
What would happen if you received implicit permission from some of your clients to loan out their gold for a percentage of the interest? They know that the gold is no longer in your possession so will be unable to redeem it whenever they wish but receive a benefit from this lack of availability in the form of interest. Nothing wrong with this, correct? Everybody wins.
The first two are examples of FRB while the third is a 100% reserve bank that loans as well as stores money.
The difference being that the bank would lose their owned capital and assets much before the assets that the depositors placed in the banks.
If they didn’t have enough of their own reserves to cover all the losses then the depositors would receive less than their full deposit during the liquidation but if they did or reached a break even point then the deposits would be returned in full.
The bank assumes the risk of default on the loans they generate and only in the case of gross stupidity or mismanagement that causes the bank to lose all their own capital and go bankrupt would the depositors lose out.
As opposed to the current system where a bank is inherently insolvent by the very nature of the FRB system
If they keep 99% reserves then the chance of not having enough to fulfill demands is quite infinitesimal, don’t you think?
Almost always when people show up they will get paid so the bank indeed has their money available on demand. People show that they wish their money not to just sit in the vault by having accounts that pay interest. Possibily on demand.
I realize that you think there is a difference.
I think I have been clear about the distinction. The gold system does not offer loans, interest, checks or most things normally associated with a bank. If you put your money in a shoebox does that make it a bank in your mind?
No, I said banks loan money and often also provide the service of storing money.
The money has to be available when demanded, that is the requirement. That does not mean the bank needs to have the money sitting in a vault. This is again the time value of money that you do not understand. Timed deposits are no different than demand deposits accept when the money has to be returned to the customer. In one case, the timed deposit, it is a fixed date, in the other case the day is fixed when the customer asks for it.
If the customer makes a deposit in a bank and the bank loans out the money, if the bank does not have the proceeds from the loans to cover the amount when the customer requests the money then it is the same problem whether the deposit was on demand or a timed deposit.
I have already said lying to people is wrong.