[rr888]

The problem with all these banks disappearing is that there are continuously fewer and fewer choices left. Eventually there will be a handful of megabanks and nothing else. I guess this is happening in every industry these days.

[losvedir]

I feel like we're missing a key part of banking infrastructure: somewhere to just park cash.

Start-ups who raise a Series A aren't looking to earn 1% on it - it seems silly that they can't really do anything with it that doesn't take on risk, and that FDIC insurance for just storing cash only goes up to a low amount.

Sure, in the old days when money was physical and there were costs involved in storing it and transporting it that makes sense. But these days, I feel like I'd like to just be able to have an account straight at the Federal Reserve or something, which doesn't earn any interest, but lets me keep my cash sitting there without any risk of a run or anything like that.

But generally, I don't think I really need a bank. I want somewhere to temporarily store any amount of cash (Federal Reserve), and somewhere else that I can invest what I want, if I'm looking for a return, with some risk, on my money. Neither of those are really roles of a bank, right?

[rrrrrrrrrrrryan]

There are a few full-reserve banks, (as opposed to fractional reserve banks), where your money is not gambled with at all, but nobody uses them because nobody wants to pay money to have a bank account.

There are Massachusetts banks insured by the DIF (the inspiration for the FDIC) that has insurance for deposits over 250k, but at that point you're kind of putting more faith in the state of Massachusetts than the U.S. government.

> Start-ups who raise a Series A aren't looking to earn 1% on it - it seems silly that they can't really do anything with it that doesn't take on risk, and that FDIC insurance for just storing cash only goes up to a low amount.

If this is what they're looking for, they should probably just be banking with a SIB [1]. Wells Fargo and Bank of America might pay laughably low interest rates on their accounts, and deposits might technically only be insured up to 250k, but the U.S. government cannot and will not let these banks fail under any circumstances because they would drag the entire U.S. economy down with them.

[1] https://en.wikipedia.org/wiki/List_of_systemically_important...

[HDThoreaun]

The government doesn't want you to "just park cash" because it makes monetary policy difficult and loans more expensive. Predictable and cheap credit is an necessary part of a functioning modern economy so the Fed incentivizes(forces) banks to use deposits to make loans.

[ghiculescu]

Don’t read this: https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...

It will make you angry.

[ursuscamp]

Custodia in Wyoming has been going through this same thing, recently. They tried to start a 100% reserve bank. The Fed has been ignoring their application for a Master Account for two or three years, until just recently, they were told on the side to withdraw the application or it would be formally denied.

Then, according to the CEO of the bank, the Fed leaked to the press.

[Eupraxias]

Great read. What conclusions should we draw? What should we do, if "money is no longer money"?

It seems like most normal people operate as though money... is money. What should change in the way most normal people do what they do with... whatever it's called now?

[toomuchtodo]

Sign up with a brokerage. Use their cash management account. Confirm its FDIC limits (many cover $1M+ with sweep functionality). If you exceed those limits, consider investing excess cash or cash equivalents in treasuries or money market funds that solely hold short dated government backed securities. This is what a Narrow Bank would do with demand deposits. Treasuries are backed by the Fed and the full faith and credit of the US gov; they are considered risk free.

Tada! You have replicated narrow bank functionality. None of us have enough pull to change Fed fractional reserve and banking regulatory policy unfortunately. If you can't change the wind, adjust your sails.

If you don't mind your deposits being exposed to fractional reserve lending and FDIC insurance, CDARS: https://www.intrafinetworkdeposits.com/ To my knowledge, it can provide at least $50M in FDIC coverage with sweeps under the hood, although someone on HN mentioned the other day the limit might be more. Ask your financial services institution what their limit is.

(not investing advice, educational purposes only)

[michaelt]

> Tada! You have replicated narrow bank functionality.

Brokerages will issue checks and debit cards now?

[bombcar]

Yup! Most just do it via a small internal FDIC bank (it's easier for them to have a bank for other reasons anyway):

https://www.tdameritrade.com/investment-products/cash-soluti...

https://www.fidelity.com/cash-management/atm-debit-card

Even vanguard can do it, but they don't LIKE to: https://investor.vanguard.com/investor-resources-education/f...

[prottog]

Many do, but even if they didn't, it's free to ACH money to your real bank checking account every now and then that you can spend and write checks with.

[toomuchtodo]

My brokerage issues checks, debit cards, and offers both inbound and outbound wires at no charge. Check with yours!

[HDThoreaun]

brokers lend cash sitting in accounts.

[toomuchtodo]

Brokers only lend out of specific core cash accounts (FCASH at Fidelity, for example). Whether you hold cash in those account types is your choice, it isn’t mandatory.

https://www.fidelity.com/mutual-funds/fidelity-funds/money-m...

[kccqzy]

Can they lend treasuries sitting in accounts, if you don't have a margin account?

[PaywallBuster]

Many banks offer "money market" accounts, wouldn't it be similar?

https://en.wikipedia.org/wiki/Money_market_account

[dgacmu]

Sure they can. You cycle it through very short term treasuries - weekly buys of 4 week t-bills if you really want to be conservative about your cash availability. And if even that is too spicy for you, buy shorter-out t-bills on the market to keep your average maturity lower.

(This mirrors some of the primary strategies used by money market funds, but a startup is in a better position because they can probably accurately forecast their cash needs a week or a month out.)

[qqqwerty]

That is not what they are asking for. Investing in t-bills either requires an account with Treasury direct, or some other brokerage. If you manage the t-bills yourself, then you have to manually initiate the transfers, which has risk of both human error (if you forget to transfer, or input the wrong amount) and counter-party risk (if the brokerage fails, you may not have access to your funds for a while). And for many companies the day-to-day operations require more than $250k in an account just to be able to clear payroll and invoices, so even if they put their reserves in t-bills, their primary account is still at risk.

Small startups and business can easily end up with cash in the multi-millions. We are talking about companies with a handful of employees, too small to warrant a full time financial focused position. As the OP mentioned, there is zero reasons we can't have a zero risk depositor account. And I think most folks would be happy to pay a small fee for the service, but fees should not be necessary as the provider can still get overnight rates. But the only reason we don't have one right now is because the government doesn't want to interfere with the banks ability to make money off of our deposits.

EDIT: For some extra context, I know someone that had a swap account at SVB. In theory they were protected, but they still lost access to their funds for multiple days, which can be very problematic for a business. And on top of that it wasn't (and still isn't) clear how one would recover swap accounts, so they spent the weekend reaching out to lawyers. At this point they have probably spent a week of time sorting this mess out. They are a small biotech focused on finding cures for diseases and have zero interest/resources for financial engineering. And for companies that typically only have 1-2 years of runway, loosing a week of productivity is a huge distraction.

[Gwypaas]

Put it in a money market fund and periodically withdraw. Use an insured cash sweep.

It is economics 101. Even a regular citizen doing a once-in-a-decade housing deal has to be wary of it.

[qqqwerty]

> It is economics 101.

Please explain to me what happens to a sweep account when the primary bank fails. Asking for a friend, who quite literally tried to get an answer to this over the weekend. Also, I asked this question in the Mercury thread where the founders were responding to questions and got no answer.

And apologies, but I added an edit before I saw your comment. But in that edit, I explain how the sweep account was of little comfort during this SVB debacle. If they had needed to make payroll on Friday, they would have missed it. And while the FDIC has restored access to 100% of funds thanks to the intervention, it is still unclear how and when they would have gotten access to the sweep accounts in the case of no intervention.

[dgacmu]

I don't know, but I can tell you that my attorneys were pretty optimistic about the state of what would happen for the sweep accounts at SVB that invested in external money market funds before there was a resolution. But they're attorneys, so they're not going to commit to a hard answer unless you're paying them, and this was a general information call.

[Gwypaas]

Of course, any single point of failure is risky.

[marvin]

I don't think this is missing at all. It's literally just what a bank does. Historically, a bog standard, straight-up boring old school bank. No fancy investment banking, no crazy growth strategy, no risky lending to maximize returns, no emperor's-new-clothes financial fashion tricks that we must do now because everyone else does them.

I worked for many years at a bank that did just that. We happened to be able to offer significantly lower deposit rates than our competition, because we had very low exposure to the kind of banking that risks government takeover due to surprising repricing events.

Wealthy customers too lazy or otherwise unable to spread deposits around to stay below the deposit guarantees chose us to an overwhelming degree, in spite of competition that offered better rates.

Granted, it's in Europe. Don't know if there's stuff in the US environment that makes this harder.

[dilyevsky]

Our HOA’s noname bank has a cash deposit sweep where they automatically loadbalance reserve cash between many banks so it stays under fdic limit. Done that for years. But what do i know I’m just an hoa board member not a unicorn startup cfo ¯\_(ツ)_/¯

[Arainach]

It's a lot easier to split $1M between four banks than to split $300M between 1200.

Side note: what HOA needs more than $250K in reserves? I'm all for a rainy day fund but I'd be asking for a reduction in dues...

[dilyevsky]

> what HOA needs more than $250K in reserves? I'm all for a rainy day fund but I'd be asking for a reduction in dues...

Leftover from suing the builder for improper waterproofing. We're spending that. Turns out retrofitting waterproofing costs a lot of money!

[ClumsyPilot]

> It's a lot easier to split $1M between four banks than to split $300M between 1200

If you tens of millions in cash, that money shoupd be managed proffeshionally. And anyway, why should preserving that money be anyone's problem other than the owner's?

There is no such thing as 'sace money' in the world. It just doesn't exist.

We as a society spend more effort making sure money is safe than we do making sure children are safe/not hungry.

A person walking outside cant be safe from getting hit by a car, a child cant be safe from getting an ilness, plant machinery cant be safe from breakdown, a city can't be safe from being hit by an earthquake.

There is no person or asset that is safe.

why should money be safe?

[fourmajor]

reserves are for more than a rainy day fund. They're also for saving up for predicted maintenance needs. For instance, say the HOA is responsible for the roofs of all the residences (like if the residences are condos). It's a somewhat predictable and high expense that you can map out to 10 years down the line or something. Then you save up for it in your reserves.

[gshubert17]

> reserves are for more than a rainy day fund.

Exactly. Many HOAs are now required to get periodic reserve studies that calculate predicted maintenance costs going out sometimes 30 years. Association Reserves did our study (<300 homes) and calculated we needed $1.4M to be 100% funded. Our HOA policies require only 60%, which we think reduces the risk of special assessments to a very low level, but that's still a lot of money. Association Reserves believes that property values in HOAs with high percentage reserves can be 5-10% higher than low percentage (<40%) reserves.

[rr888]

Our HOA has upcoming $1.5mil bill coming for a big job.

[cduzz]

You sure about that?

If you have an account with noname for $3,000k and noname has 12 accounts with localcorp1-localcorp12 each of $250k -- and noname goes poof, what happens?

I think, according to the preSVB rules, you get $250k from FDIC and then get a very strong claim to $2,750k from the rest of noname's assets (if no BigBank steps in to buy the part of noname you're connected to).

https://www.fdic.gov/consumers/banking/facts/priority.html

You'll (probably) get your money back, but after how much time?

[dilyevsky]

When I look at acc statement it shows a list of completely different banks each with <250K. If our bank goes bust I presume we get our first 250K that are sitting in the bank itself as soon as FDIC takes over which is enough for operations and will need to contact other banks for our money. It's more like a brokerage account than a regular deposit.

[cduzz]

I'd give those other banks a call and ask.

Also, per FDIC rules, the 250k is per party attached to the account, so at least for a married couple it seems to be $500k per account.

But hey, I'm sure it'll all be fine and we won't need to worry about the fine print.

[dragonwriter]

> Also, per FDIC rules, the 250k is per party attached to the account, so at least for a married couple it seems to be $500k per account.

Its per owner per account class, but what constitutes an owner varies by account class, and, IIRC, many class by definition have a single owner.

But, yeah, you can double your coverage in simple directly-owned accounts as a married couple by splitting funds between maxed out single accounts ($250K) for each party and a maxed out joint account ($500K) for a total of $1M in coverage, because single and joint accounts are separate categories.

[dragonwriter]

Brokered deposits are insured in the depositor (not brokers) name. If they still happen to be over the $250K limit, they are historically the least likely accounts to get full value back in a failure, but as long as there is less than the insurance limit per bank, they are fully covered.

[qqqwerty]

SVB offered a sweep account. Turns out it does not cover the lawyer fees that one will incur when trying to figure out how to recover those accounts. Maybe your HOA should hire a CFO ¯\_(ツ)_/¯

[dilyevsky]

We have all that infra. Part of the reason why hoa fees are just ridiculous these days

[mike_hearn]

This is actually what CDBC proposals are about, at least originally. The idea is that by making the computing infrastructure of the central bank scale up and out, companies and even individuals can directly hold and transfer "hard money" i.e. money directly issued by the central bank, without needing an intermediary bank.

When I was last tangentially involved in such projects it was quite unclear how they thought this would interact with monetary policy. Narrow banks could easily be created today without any new IT systems, but generally, governments are unwilling to do what it takes to enable them for political and financial reasons. At some level it's another obfuscated way of raising revenue without explicitly raising taxes: they force people to deposit money in banks, force banks to lend those deposits to "low risk" counterparties like themselves giving them more money to spend on vote-winning policies, then if the banks go under they either print the money to bail them out (taxation via inflation), or force banks to charge the depositors (taxation with the banks as collectors), thus hiding the true nature of what's happening.

To get banks with zero risk deposits is therefore not really an infrastructure problem - banks could easily just park cash with the CB and then charge fees for administration of things like the websites, the branches and so on. The problem is to convince governments to reduce their spending levels to the point where they can eliminate the rules forcing banks to loan them money, which in turn would allow narrow banks/accounts to appear, and that in turn would allow them to start removing the guarantee on deposits. In such a system people who wanted ROI would have to explicitly move some deposits into funds that expose the liquidity risks and requirements, and which can be left to collapse without a bailout if they make big losses.

Unfortunately governments are currently stuck in a local minima. Although everyone can see that bank runs are bad, and that they're also easy to eliminate, doing so would require people to believe that the government will not bail out depositors at a fractional reserve bank if there's a run. For as long as people suspect the government's commitment to the policy is weak, the winning move is to keep banking with a fractional reserve bank and pocket the zero-risk interest yields. The suckers who put their money in a safer place will end up poorer than those who put their money into a bank that later collapses.

[Night_Thastus]

The better bet in your case is a Credit Union. Something local and not very large.

They're smaller organizations with far less overhead and no stupid fees for every little thing.

Perfect for just storing money if that's all you need.

[jameshart]

You should probably read patio11’s The Alchemy of Deposits - https://www.bitsaboutmoney.com/archive/the-alchemy-of-deposi...

[lovecg]

Any bank that tries that would have to charge a fee to cover costs and will quickly lose business to the other “banks” that don’t do that.

The fundamental lie here is allowing banks to tell you you have “cash” deposited and “available” with them. If the online app showed the truth - how your $10k you deposited turned into some shares in mortgage backed securities or whatnot, the alternative “just pay to park some cash” might be able to survive.

I have the same pet peeve about Amazon being able to tell you that you “buy” a Kindle book instead of buying a revocable license to read it temporarily.

It’s all false advertising really and it’s eroding competition and consumer trust.

[jameshart]

It’s not a lie.

Certainly for up to $250,000 deposited at an FDIC insured institution, it is absolutely true that you can assume that you have cash deposited and available. If at any time the bank gets itself into a position where they can’t make good on that, FDIC will fix it so you still have your cash.

That is precisely the mechanism that the federal Government makes available that gives you a place to park your cash.

[bombcar]

As a note, this is one reason to still keep some paper checks around for your FDIC accounts.

Because when SVB closed on Friday and reopened on Monday, you could have still used a paper check during that time and it would be honored; but online access may have been shut off.

[umanwizard]

Does writing a check on a bank you know to be insolvent count as writing bad checks (which is a felony in some states)?

IANAL and it’s quite unclear to me.

[tim--]

I would think that it wouldn't be an issue, so long as your total for written checks that have not cleared is both not over your balance amount, and not over the FDIC $250k limit, but IANAL as well.

[krisoft]

> Any bank that tries that would have to charge a fee to cover costs and will quickly lose business to the other “banks” that don’t do that.

There is this saying that if you are not paying for it you are the product. Curious that people only apply it for search and email services.

[SilasX]

>The fundamental lie here is allowing banks to tell you you have “cash” deposited and “available” with them. If the online app showed the truth - how your $10k you deposited turned into some shares in mortgage backed securities or whatnot, the alternative “just pay to park some cash” might be able to survive.

That's basically what bond mutual funds are (including money market mutual funds, which closely simulate savings accounts via $1 share price), and they seem to have a market.

[saurik]

The operations fee required for that company posited to have just raised its series A to park its fat stacks of cash is going to be negligible (as it should be constant for any size of account).

[lovecg]

Well the other side of the equation is it would be very very tempting to do something with all that cash. Like “let’s fire the CEO who doesn’t go for it” tempting. I don’t see this working without regulation.

[saurik]

The problem for the startup is they are already doing something super risky and so want to be 100% conservative with the cash used to finance their operations. The last thing their investors want to hear is "so yeah, you wanted us to shoot for the moon with your money, but we didn't want to lose out on a couple percent of interest so we invested it in the market and that's down 20% right now so we're having to wait a bit to execute part of our strategy as we expect that to go back up soon".

Like, the problem is that the mental model of this money is wrong: there needs to be a place where a company that intends to take a bunch of money in and then spend it over the course of a few years can do that without it causing everyone a bunch of issues as those deposits were supposedly backing loans to still other people (such as that story with the hashicorp people that was posted here yesterday with the Chase bank branch that failed to understand that a startup's goal is to lose money, not invest it).

[jameshart]

The Federal Reserve doesn’t want to be in the business of managing all the infrastructure of payments.

Banks offer a deposit product that lets you do useful things like ‘get your salary paid directly into your account from your employer’s account’, and ‘use a debit card to authorize transferring a couple of bucks to Starbucks’s account’.

[bombcar]

> The Federal Reserve doesn’t want to be in the business of managing all the infrastructure of payments.

I mean they're trying to work with it: https://www.federalreserve.gov/paymentsystems/fednow_about.h...

[jameshart]

Fair - although still through depository banks.

[andrewmcwatters]

> Sure, in the old days when money was physical and there were costs involved in storing it and transporting it that makes sense.

???

This never stopped being the case.

Banks receive deposits and make loans. They are core pieces of modern banking. They play a role in increasing the monetary supply through debt servicing.

[lottin]

Banks make money from loans. A bank that didn't make loans would have to make money from deposits by charging a large fee to its depositors, and compete for deposits with other banks that don't charge a fee.

[giantg2]

For most of us, a bank is a place to just park cash. Most people are well under the $250k insurance. It seems the government is willing to cover depositors above that amount now too (SVB).

[analyst74]

What if the federal reserve goes down? Or just that US dollar goes down in value.

Even if you only do business within the US, exchange risk is baked into your supply chain and inflation.

[gshubert17]

The Federal Reserve Bank's current balance sheet (as of last Thursday, https://www.federalreserve.gov/releases/h41/current/h41.htm ) shows they hold $4.5 trillion in Treasury notes and bonds and $2.6 trillion in MBS (mortgage-backed securities) out of a total of $8.3 trillion. The first two numbers are face value not market value.

If market value is 10% less than face value for these securities on average, then the Fed would have unrealized losses of about $700 billion. But the Fed doesn't have the same insolvency or liquidity risks that ordinary commercial banks do.

The US dollar would go down in value if there were more dollar sellers than buyers. That would happen if those with dollars had something else to buy. The Us dollar index is up a bit today, so far. I'd imagine at the moment that a run on the dollar would be unlikely. But there could be some combination of circumstances . . .

[andy_ppp]

> I feel like we're missing a key part of banking infrastructure: somewhere to just park cash.

We're going to need a bigger mattress...

[piva00]

Corporate consolidation has been going strong since the late 90s/early 2000s, at least in my lifetime I saw the dwindling number of actual independent companies, the vast majority of big companies I was a customer during my lifetime have coalesced into some large conglomerate-ish... And in multiple countries, it really feels it's happening everywhere, even though seems more prominent in the USA.

[kibwen]

This is a natural consequence of markets (and proof that economies of scale work). On a long enough timeline, they trend towards consolidation. This is why constant government intervention is necessary, to break up monopolies and restore competition. A government that refuses to engage in trust-busting is broken.

[frandroid]

It's also the result of a low tax and low interest rate environment. When you can borrow money for free, or functionally for less than your rate of profit, why wouldn't you buy out your competitors?

[hedora]

I’m not so sure. The US has markets that are resistant against consolidation.

I think this is a natural consequence of letting the biggest companies control the politicians that set the rules.

(What you say is true for pure free markets, but the banking industry is incredibly regulated, and the government routinely picks winners and losers in it.)

[Supermancho]

> The US has markets that are resistant against consolidation.

I don't see why they are special and the trends are clear, despite the claim. If govt regulation results in a few winners who have played by the rules and are seen as more reliable or it's free market monopolists (or duo, etc), the result is the same.

[mughinn]

I'd argue it's the opposite, government intervention and existence explicitly favors the biggest players and nudges the market into oligopolies and monopolies

[comte7092]

Are you disagreeing with parent comment? I’m having a hard time parsing.

Are you claiming that economies of scale don’t exist, or that they are trivial to the composition of markets?

[prottog]

Diseconomies of scale also exist and are very real, and I theorize that many organizations try to overcome it by applying political pressures on smaller peers.

[mughinn]

I'm claiming we need less government intervention

[grokgrok]

That's how we get wonderful things like the East Palestine Disaster. Let's deregulate biotech! Coming up next after Shark Week -- Lab Leak Week! Let's deregulate environmental pollutants! You don't need clean drinking water! /s

[comte7092]

I guess that’s my question.

Are you arguing that, if markets are left alone, economies of scale are more or less irrelevant, and we wouldn’t see consolidation in banking?

Seems like a dubious claim to me. More driven by ideology rather than evidence.

[robertlagrant]

> This is why constant government intervention is necessary, to break up monopolies and restore competition. A government that refuses to engage in trust-busting is broken.

Conversely, more regulations mean more monopolies due to larger first-mover advantages, and the only viable route is to build until you get bought by a parent company who can sort out the admin.

Constant government intervention isn't what makes competition. It being worth it to start and build a company without, in the slim chance you make it, being a verbal and financial punching bag for future politicians, is.

[kibwen]

The fact that economies of scale exist means that even unregulated markets will consolidate. Regulation is an orthogonal concept. On the spectrum of market competitiveness, one extreme end (perfect competition) is an unstable state, and the other extreme end (monopoly) is a stable state. As consumers we benefit from competition, but free markets abhor competition. Something needs to intervene to reintroduce competitiveness into monopolized markets, and that something is going to be indistinguishable from a government.

[robertlagrant]

I agree that even less regulated industries have monopolies, you're right, but those will tend to be companies that either have a natural monopoly (e.g. they own some land) or are so competitively priced enough for their customers that there's no obvious way to create a competitor that can take market share from them. I don't see either of those situations being improved by constant government interference.

[javier2]

Banking as well as food industry. Almost all of food industry seems to be captured by a couple of mega conglomerates.

[Scoundreller]

Here’s the best article I found on that topic: https://www.theguardian.com/environment/ng-interactive/2021/...

At least banking has credit unions everywhere, although the ones around me in Canada are also consolidating rapidly.

[WillAdams]

At least credit unions remove the profit motive --- I wish that there was a similar movement to farmer's co-operatives, or setups like "Southern States", which is a farmer-owned co-operative for supplies.

[DeathArrow]

With time they'll all fusion into one mega-corp.

[mtlmtlmtlmtl]

The Earth Corporate.

Or E[vil]-corp for short.

Edit: I realised a missed opportunity for a Mr. Robot reference.

[altgeek]

Weyland-Yutani

[selimthegrim]

I was sort of hoping the user themselves would say this one

[doitLP]

Buy-n-Large

[hugs]

Googlezon (From the short film Epic 2014)

[favaq]

Maibatsu Corporation

[spariev]

Tessier-Ashpool

[lsllc]

Zorg Industries

[imhoguy]

E Corp

[fsagx]

Omni Consumer Products

[lsllc]

Mr. Lee's Greater Hong Kong

[cyann]

Brawndo

[pjc50]

Chaebol.

[orangepurple]

And people are still joking about the New World Order and One World Government

[dr_dshiv]

Semi—Automated Luxury Communism, Inc

[antibasilisk]

More like Communo-Capitalism, i.e: quasi-communism operating within a nominally capitalist system

[red-iron-pine]

that's called socialism

[dgb23]

Socialism is a _very_ broad term that ranges from anarcho syndicalism and libertarian socialism to democratic socialism, market socialism and many others. The key commonality of these is that you have some form of worker owned economy AKA you have some say and direct responsibility in all aspects of life, including your work.

What is described here is some variant of state capitalism or state monopoly capitalism, which is an extremely controversial form in socialist circles: https://en.wikipedia.org/wiki/State_capitalism

[antibasilisk]

It would be a type of socialism, as is the case with any variant of communism

[mym1990]

But what is the competitive advantage to be had between a regional bank and a megabank? I kind of love my megabank(and there are quite a few megabanks too). I can expect a branch to be in a foreign country, it provides a pretty great mobile user experience, it is well capitalized, the in person customer service has been great as well.

Is it that less competition allows for companies like Wells Fargo to take advantage of their customers on a large scale? Is it that regional ones can provide fewer fees?

[SenHeng]

As someone that lives in a rural community, the national mega bank wouldn’t offer me a mortgage because they didn’t understand the local market, whereas the regional bank was the one most people living here got their mortgages from.

Particularly business loans.

[chadash]

I'll add another example. I have a friend who lives in the Boston area and bought an old home about 10 years ago with the intention to gut renovate it. He didn't have enough cash to pay for the renovations without a loan, but the likes of Chase, Wells Fargo and Bank of America generally don't want to deal with mortgage loans like this, because 1) it's a different workflow... the bank gives you money piecemeal as construction proceeds rather than all at once and 2) the bank is basically fronting you the money based on what your home is going to worth when it is done.

For example, say I buy a home for $400k and gut renovate it for $200k. Let's say that the specific renovations are going to improve the value of the home, but it's hard to know by how much. If I go to Chase, they will gladly lend me 80% of the $400k ($320k). But Then I need an $80k down payment + $200k for renovations, or $280k cash on hand to make this work.

If I go to a smaller bank that doesn't do things as algorithmically and knows the local market, they might say "hey, we're gonna give you the $320k down payment and then we think that in that area of Boston and based on what you are doing, the house is going to be worth $150k more when you finish renovations, so we're gonna finance 80% of that $150k as well ($120k). You are still going to need to prove that you have your $80k down payment + $30k (20% of $150k) + $50k (the difference between what renovations cost and what they will add to value of home), or $160k total. So in this example, I need to have $160k in the bank if I want to make this whole transaction work with Regional Bank X, whereas with Chase, I need $280k.

[gizmo]

A different take on your anecdote is that your friend goes to a big bank and they're willing to take a 20% down payment which gives your friend 5x leverage on the mortgage. Your friend says: "that's not good enough! I need more leverage because I also need money for renovations!". But big bank says "absolutely not, that's irresponsible."

Your anecdote presumes that the small bank is right and the big bank is wrong. I'm not so sure.

[CydeWeys]

It's not more leverage after the additional money loaned is plowed back into the home's equity by way of the renovations, however. The bank simply needs some way to enforce that the additional money loaned is actually being used for this purpose, and that the renovations are of the 'widely acceptable' type.

[ClumsyPilot]

There is nlan easy way to know: big bank didn't do the math and come to a dofferent conclusion, they jusy decided they don't want to deal with the problem.

Also, whay does 'right' even mean in this case? They lost the customer. Unless customer default on the loan, they won't be 'right'

[p_j_w]

>They lost the customer. Unless customer default on the loan, they won't be 'right'

This isn't how banks work. They put in place rules that they consistently adhere to when they decide if they're going to give out a loan to someone or not. The real answer is that if consistently allowing that type of loan would make them more money than it would cost, then they won't be right.

[ericmay]

Genuine question is that more to do with the regional bank knowing the market or more to do with JPMorgan Chase having more stringent regulatory requirements and controls? Maybe a little of both?

[TheOtherHobbes]

MegaBanks have automated procedures which are more about automated bureaucracy than regulations.

If Computer Says No, nothing is happening. But Computer lacks any sense of context or local variation. By definition decisions are based on national stats which average a lot of behaviour.

Smaller banks have people - who are probably experts - making contextual loan decisions. Someone's good character and work ethic - or lack of - is going to influence the decision.

This doesn't make decisions infallible, but it's the difference between small-focus rigid decision making, and broad-focus community-dependent decision making.

It's also why so many people are caught in the rental trap. Many of them are perfectly able to afford a mortgage, but they don't match the bureaucratic criteria on some relatively minor point, and so Computer Says No.

It's also why credit scoring is so slanted. I have a perfect payment record, but no loan history because it's more than six years since I paid off all my debts. If I apply for a credit card I'll be marked down because I don't have a large existing credit limit.

This is deliberate policy, because lenders don't want people like me who will pay off the balance in full every month. They want borrowers who won't. This prioritises immediate profitability - until the loan book blows up with a wave of defaults during a recession, because these borrowers are inherently riskier.

[chadash]

Both. It isn't worth JP Morgan's time to understand the different neighborhoods in Boston. Their computer model is their computer model. But think about where you live. I'm sure you can tell me that certain streets are desirable and certain streets much less so. Maybe there is a block nearby with particularly nice foliage that makes it look good. Information that you wouldn't know by looking at a map. A regional lender might be tuned-in to things like that in a way that a megabank won't be, because it's not worth their time to get to know each and every neighborhood.

[floatrock]

Seems more like a long-tail thing... mega banks take all the standard things that can be bundled into megasecurities, let someone else worry about all the things that don't fit into a standard box.

[izacus]

"stringent regulatory controls" might be controling for issues in US when you're trying to get mortgage in Asia.

[mym1990]

Ah yes, interesting perspectives all around, thanks!

[wayne]

Examples: (1) One reason SVB did well is it understood startups. If your startup just raised a large round and needed a small loan, you were more than good for the money, but most banks would scoff because your business didn't have a long record of profits. (2) The "simple" thing of having a no-fee, no-minimum checking account with a convenient ATM you can use without fees is something we can take for granted in larger metro ares; in many places your local regional bank may be your only choice.

[mym1990]

Why would a startup need a small loan after raising a large round?

[hedora]

- Corporate expense cards

- Amortizing real estate costs into the future to get to a stable cash flow.

- Rainy day funds

(The last one is a risk to the lender, but can be low risk and profitable on average for the lender, as that part of SVB was.)

[eddsh1994]

Before the money is actually in the bank but is reliable because SVB partners with the VC firm responsible for leading the round who vouches?

[jerf]

The one I hear about the most is service. Large, do-it-all banks don't have a lot of motivation to care about you and your $100,000 bank account & half-a-million mortgage. They've got corporate accounts to service against which yours is a mere rounding error. A smaller local bank will find you to be big, valuable customer to keep around.

This is a general economic principle. To put it into an HN context, this is why Google, Amazon, Facebook, Microsoft, and such aren't the only tech companies. When they sit down to spend a dollar, they do an analysis and put it into the place that will make $1.60 (tech companies still have absurd return ratios compared to the rest of the world even after the last year). It doesn't make any sense for them to put it where they will make $1.30. It doesn't matter how big they get or how much money they have, that analysis always holds true.

This is why Google shuts down so many things. Even being profitable isn't enough for them, it has to be wildly profitable and at scale to compete with "making ads better". It is also why it is perfectly rational to be distrustful of anything Google puts out and fear it being shut down. It is not a transient corporate culture thing, it is a systemic issue with where their profit comes from. And yet it is rational for them to float out various things as probes to see if there's some huge profit for them to tap into, even as total long shots.

Meanwhile, other smaller companies can happily survive and thrive on that $1 -> $1.30 return, and then themselves be too big to worry about a $1->$1.13 that a startup may thrive on.

There are some other reasons why One Big Company isn't actually a practical outcome, but this is one of them, and the one relevant to this discussion. It applies to tech companies. It applies to the retail industry; this is why Wal-Mart and the fancy boutique downtown import shop can still coexist, even today. It applies to the auto industry, which is why your local auto dealer may service a local business' 10-car fleet but there will be another company servicing huge fleets. And it applies to banks.

This does not mean a large bank is obligated to be negligent of you, it just mean that there's a pretty strong pressure that is hard for them to resist. Strong internal leadership may push the consumer branch to be friendly as a sort of advertising mechanism for the rest of their bank, because you never know what individual will be in charge of directing a large corporate account in the future. But they'll be vulnerable to the next MBA to come along and cut that cost and boost short term profits, and who will have moved up before the long term costs come in.

[hedora]

In the current system, a loan underwriting office can screw up and deny a loan, and it is no big deal. With one big bank, the same error means someone will never be able to buy a house/car/etc.

Also, not all banks offer all products. Many of the big megabanks product portfolios are missing fairly common financial instruments

[haarts]

Where are you banking?!?

[mym1990]

It might have something to do with me being on the more chill side of things when it comes to customer service or other issues popping up. I'm pretty non-confrontational. I was also on the front lines of customer service for a while, those people have to deal with a lot, so I don't like to pile on.

[Red_Leaves_Flyy]

Capitalism 101 explains that the consolidation of capital is necessary to maximize the capital extracted from customers. Basing our entire economy on a few average people handling the assets of billions is bound to go disastrously wrong. As we have seen cyclically for decades now. Does a bank exist that hasn’t knowingly laundered organized crime money, paid bribes, or otherwise engaged in substantial white collar crime? I cannot find one.

Credit unions are superior and their disparate ownership structure is a key reason why.

[mym1990]

Capital is only one side of the coin, competition is the other. Competition ultimately drives capital distribution.

[Red_Leaves_Flyy]

>“The unbridled, competitive free markets that the Right cherishes don’t exist today. They are a myth.” Furthermore, “The Left attacks the grotesque capitalism we see today, as if that were the true manifestation of the essence of capitalism rather than the distorted version it has become.”

https://www.cato.org/regulation/fall-2019/myth-capitalism

I’ll posit that this am academic flight of fancy or distinction without a material difference. The fact is there’s no meaningful competition in the American economy, whether it’s called capitalism or socialism for the rich and debt peonage for the rest.

[specialist]

> maximize the capital extracted

Cause and effect may be the reverse.

Capitalism simplifies and commodifies, to extract more of the surplus.

Consolidation is often rationalized with the goal to "reduce redundancies" (and passing the "savings" onto consumers, naturally).

[Red_Leaves_Flyy]

It’s an ouroboros, a cancer. One leads to the other and back again until everything has been extracted and the house of cards collapses in on itself and the survivors fight over the scraps to repeat these mistakes over again. The sooner mindless growth is reigned in and economic targets are forcibly aligned with reality, involving hard reality checks for very powerful and very despicable (subject of many articles trending on HN this past week) the better we’ll all be.

[ren_engineer]

don't worry, just buy your Federal Reserve CBDC and keep up your social credit score so they don't unperson you with no recourse.

End game is the Fed tracking everything you do financially via their digital currency, this is almost classic Hegelian dialectic where you now have a manufactured crisis to get people begging for CBDC

[jcadam]

CBDC will be easier to implement if we can kill all these pesky small and medium sized banks...

[checkcircuits]

If you paid attention the last week or so there have been a lot of accounts here promoting the fed bank as a solution.

You are correct and I agree with your assessment for what it's worth. Dozens of banks collapsing has two outcomes. Centralization into TBTF banks or a fed bank. Given the desire to manipulate currency further with CBDC I would suspect the modern money "theorists" in congress are salivating.

[cjbgkagh]

In accounting; the Big 8 -> the Big 5 -> the Big 4. EY is looking a bit precarious as they seem to be the goto firm for fraudulent companies so we may end up with the Big 3.

[lettergram]

Banking is an industry where it’s not difficult to break up.

(1) ensuring only $250k should ensure capital is spread

(2) the above hasn’t been happening, so people are moving to big banks because the government bails them out

(3) regulations are such that smaller banks have to go through an insane amount of work to get to a “big bank”. Basically the big players have a moat. They’ll get bigger because they control / design regulation. It helps consolidation. Smaller banks can’t enter

(4) it doesn’t help some (maybe all) of these big banks are also board members of the fed. For instance Jamie Dimon of JP Morgan [1] where they funnel support to their corporations

(5) to fix, there’s a lot of options. (a) Simple one is to limit the amount of assets a bank can hold. They currently only do that for the smaller banks (not the big ones) (b) audit the fed directed by congress (there’s a lot of inner dealing there) (c) create a graduated tax based on asset (as it increases systemic risk) (d) good old fashion anti-trust breakups

[1] https://www.newyorkfed.org/newsevents/news/aboutthefed/2010/...

[nindalf]

This is a consequence of computers + internet. 2 ways in particular:

1. Large organisations become unwieldy - computers help track and tame that complexity.

2. Geographically distributed organisations have trouble communicating and can be outcompeted in a region by a company focussing on that region. The internet helps reduce the friction in communication.

Once both of these started getting adopted in the 90s and 00s, big companies became more competitive relative to smaller ones.

[yamtaddle]

Pretty sure it's mostly a regulatory thing.

The East India Company was pretty big and operated globally. And they didn't even have electricity. Ditto the Catholic Church.

[dd36]

And the lack of antitrust enforcement in the last 40 years.

[hirako2000]

And the increase of lobbies and their increasing efficacy in getting tailored legislation adopted. Arguably as politics has become more and more a business. Not just in the U. S

[hotpotamus]

Monopolies and robber barons are hardly a new phenomenon. In fact, I've seen the term "robber baron" derided as an anachronism. I suppose oligarch or plutocrat are the modern terms. Nevertheless, economics 101 (literally I had to sit through this in freshman intro economics) will tell you about forces that drive businesses towards consolidation.

[duxup]

Is this an issue with specific types of banks?

In the US the variety of consumer banks seems very healthy. Granted I understand there are different types and things are different elsewhere.

[wil421]

Exactly, I still bank at BoA due to convenience and it being my longest open account but any bank service I need is first run by my Credit Union.

[Scoundreller]

I’m sorta the opposite, I still use my out-of-town credit union. Best investment for my life: been getting $5 every year on my initial $5 share (got in as a child) for a few decades now.

Have a line of credit with a big bank that I don’t really use, but means there’s a bank everywhere I can walk into if I needed a large amount of cash or a bank draft, and I pay it off the same day.

[duxup]

I switched to all credit union now. Works great for me.

[samch]

We do the exact same thing. BofA is a convenience for us, but our credit union is a safe haven with better rates, better service, and less risk.

[pjc50]

https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... claims that there were 4,706 banks reporting to FDIC at the end of last year. If anything there are too many banks and too few big internet companies, given that you can fit the five that matter into one acronym.

[mattnewton]

I’m not sure it’s fair to compare regional banks to FAANG if that’s what you mean? There are plenty of “internet” companies that don’t fit into FAANG just as there are only a few mega banks on the scale of FAANG. Or I misunderstood?

[dgb23]

Is that really true?

There are also new banks popping up here and there that grow very rapidly due to a more software/tech focus.

And there are smaller more specialized banks that have been doing well (in Switzerland). There is at least one very recognizable co-op bank here and another one with a focus on sustainability.

[bryanlarsen]

Matt Yglesias makes the case that the answer is more megabanks.

https://www.slowboring.com/p/america-needs-more-giant-banks

[bumby]

For the conspiratorially minded, this is a feature, not a bug. The theory is that the creation of the current central banking system was, in part, to wrest power from the growing influence of regional banks back to the megabanks.

[checkcircuits]

It's not a theory nor is it a conspiracy insofar as it is lacking evidence. The collapse during the great depression was used to sell the fallibility of the small banks. Senator Aldrich took the bill written by the wealthiest bankers in America straight to congress to form the fed.

It's relatively well known in fact [0]. Once you realize that was the intention to begin with the structure of modern banking starts to make a lot of sense.

[0] https://www.federalreservehistory.org/essays/jekyll-island-c...

[SheddingPattern]

Credit Suisse is a top 50 bank while SVB doesnt even make the top 100. SVB dissapearing leads to a lack of choice. Credit Suisse may pose a genuine global systemic risk.

[DeathArrow]

You can always buy crypto. :D

[ClumsyPilot]

I've had enough malaria,'maybe its time to try ebola

[Red_Leaves_Flyy]

Ownership, conversions, and transfers suck. To get similar utility out of crypto as banks one must sacrifice the decentralized features.

[Karunamon]

I get that buying your groceries and morning coffee with crypto probably isn't happening anytime soon, but why do you single out those three things? I don't get what you mean by ownership, conversions are automated and easy (things like Uniswap), and transfers are as straightforward as transferring money could possibly be (insert recipient, insert amount, hit send). What do you mean?

[Red_Leaves_Flyy]

Have you tried getting someone from nothing to setup to use all this independently? How long did it take to get them their hardware wallets, multiple backups in multiple secure locations, and various exchange accounts. How much did it cost? Not a chance in hell I’m setting up my parents or grand parents with this crap.

[pixelpoet]

No way, crypto is a scam and Ponzi scheme! Totally unlike banks getting bailed out with taxpayer money and giving exec bonuses etc.

[red-iron-pine]

there was a time when the government had the guts to actually regulate and break things up.

capitalism works when there is competition, otherwise it's just an oligarchy with ever-worsening terms and conditions.

[ulrikhansen54]

New ones will emerge (eventually)

[johnbellone]

Taco Bell.

[Eddy_Viscosity2]

That is the end goal, all things to be owned by a single person. They win capitalism.