[allie1]

There are exceptions.

Ally bank has been paying reasonable yields on deposits, being a digital bank with lower operating costs.

The bank model works, it’s the “too big to fail” model that is broke.

The one upside of TBTF banks is you forfeit any deposit earnings to get “insurance” on the full amount.

[discardedrefuse]

Someone correct me if I'm wrong, but the reason banks like Ally are able to offer high-yeild savings account is because they are using your money to invest in (something like) a government money market fund. Take SPAXX, it currently has a 4.5% yield. Ally is only giving you 3.75% and keeping the rest.

[jldugger]

This is how every bank works though.

The trick is in modelling and mitigating risk, of which there are many:

1. Duration risk. With demand deposits, banks borrow short and lend long. Demand deposits come and go daily, but the banks use them to make mortgages and other loans. Some stay on the books, others sell and either make more loans or hold other assets. The risk is that depositors may all ask for their money back, but you cant recall the loans you made.

2. Interest rate risk. Interlinked with duration, rate risk is the risk that the rates you loan at now are less favorable than rates later. A loan earning 1 percent is less valuable than one earning 2 percent. The strength of this relationship is tied to duration; losing out on 1 percent for 1 year is less bad than losing out for the next 30 years. The rule of thumb is that for every 1 percent rate hike your asset loses 1 percent of its value times the years until it matures -- so that 1 percent underperformer with a 30 year duration loses 30 percent of its value!

3. Default risk. Loans may go into default, and then instead of getting your money back in 10 years you get less, maybe even nothing. You try to price that into your underwriting, but the error term here might be called "underwriting risk" -- the risk that your risk estimate is wrong.

Theres more ive likely forgotten as a layman, but I'm sure you get the idea.

[lvl102]

What we need is a “boring” banking model where deposits are fully guaranteed by a bank. No lending. In digital age, that should be ridiculously easy to do.

[no_wizard]

how do you propose they make money to keep the bank open? Charge for accounts? I don't think such a draconian rule is needed here. Free checking is nice.

There's nothing wrong with being a low risk lender. Thats not the central problem with the banking system in the US. Its that bigger banks take riskier and riskier bets with money that they really shouldn't be, and when bad times hit they often don't have proper risk management in place to cover it, or its unpredictably catastrophic.

It used to be that these activities were separated, limiting risk to the average person significantly as a result. Simply forcing that separation again would be more than enough to get some stability back into the banking system.

[0zemp2c]

this is how the Apple bank accounts can work

Apple makes money selling phones, not mortgages

the funds deposited can be reinvested in Apple stock

as long as Apple is not loaning at interest, they could pull it off

I think people are underestimating the blast radius of these accounts...imagine an entity engaged in "fair" banking (and only banking) that is too big and powerful to be undermined by JPM, BofA etc

[no_wizard]

Its all actually backed by Goldman Sachs and their underwriting partner. Apple isn't suddenly a bank or even financial institution, they are in partnership with one, and through that able to exert some leverage around deposits, which is cool, but they still had to get a bank involved for it all to work.