[echelon]

Why don't banks charge to hold your assets? They're liabilities. You should have to pay the bank interest if you expect to be made whole. Rhetorically speaking, where is the restitution money coming from?

If you're making money in interest, dividends, capital appreciation, market value, etc., that's because your capital is being employed. That's risky and the profit (or loss) should be a function of that risk.

Banking as a pure store of assets feels decoupled from that objective.

I do think SVB depositors being made whole was good, but a hypothetical widespread failure event across dozens of big banks would be catastrophic. There should be easy liquid stores of value that are essentially zero risk for this type of failure, even if you have to pay for them.

[chernevik]

Banks use deposits to fund loans and profit by the difference in the rates paid by the loan and the depositor.

It's a pretty good business model with a stable deposit base, but SVB got a huge influx of deposits and mismanaged it.

[echelon]

> Banks use deposits to fund loans and profit by the difference

Yes, but but that's risk.

It feels like there should be a class of bank that doesn't get involved in additional risk at all, that makes all of their expenses and margin on management fees.

You'd experience inflation and the fee itself, but it'd be better than stuffing it under a mattress.

I imagine you'd want to have this as a diversification method as one vehicle in your total protfolio of investments and value stores.

[chernevik]

I think you're describing money market funds, they take your cash and put it into very short-term commercial paper and t-bills. Google says they're managing something like $3 trillion these days. Places like Vanguard, Fidelity and Schwab offer them and you can write checks against them.

And many banks make lots of money on fees and various services. It's problematic because no one likes ATM fees and minimum balance fees, and the politicians get involved.

[imtringued]

No, I think he means something like the Narrow Bank or Oeconomia Augustana by Dieter Suhr.

Oeconomia Augustana works like this. Your bank borrows money at the Feds funds rate and when you borrow, instead of paying the interest on the loan, the feds funds rate is deducted from your balance. When you transfer your balance, the new recipient has to pay the interest fees as he is benefitting from the fact that the Fed issues this safe liquid and universally accepted money and the bank can survive a bank run. The interesting aspect of this is that if you lend your money via certificate of deposit you don't have to pay the fee, so there is no risk of depositor funds for loans drying up as opposed to the Narrow Bank system where there is very little incentive for people to lend their money via certificate of deposits, which is why they suggest doing away with lending and betting everything on mutual investment banking.

[echelon]

Exactly what I was interested in, and the other benefits and properties of this setup are great.

I want to put some portion of my portfolio in something exactly like this. It would make sense to me if more companies and individuals held some portion of their net worth in these safe depository vehicles. This feels bullet proof.

Thank you!

[imtringued]

People expect free government subsidized insurance on their bank accounts though. The fact that this means wealthy people receive a higher subsidy does not bother them.

In fact, they will rally against it, even though say a -5% on their demand deposits is most likely going to be an insignificant amount of money, and if they want to earn money they should have gotten certificates of deposits so the bank doesn't have to take on the duration risk.