[lotsofpulp]

>You don't see too many banks collapsing, don't you? When it happens, its a big deal like with the SVB earlier last year.

"Moderating risk" = depending on the US federal government bail you out?

There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman.

[mrtksn]

Nope. It's about creating a system that attempts to analyse risks and invests within margins that are acceptable for specific products.

It impossible for a bank for example to put all their money into Dogecoin because someone got a hunch that Musk will tweet about it. To do that they will need to create some kind of instrument that allows others to bet on Musks tweeting habits.

> There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible

That's not what banks do. You can do that without being a bank, like PayPal did. Most places will have different and much lightweight regulations than banks for this and you will go to jail if you do anything more than holding and transmitting customer money.

[lotsofpulp]

>That's not what banks do. You can do that without being a bank, like PayPal.

Except PayPal has no FDIC protection.

The part of the bank (or credit union) that required the US government to provide FDIC protection was due to dealing with cash. Imagine creating a country with just electronic money. What purpose would a bank with a FDIC protection serve if the government can just operate electronic money accounts itself? And if you want to take more risk and earn a higher return, you find a broker or investment fund or investor.

[mrtksn]

>Imagine creating a country with just electronic money. What purpose would a physical bank serve?

Investing customers money, create money.

Most money in the world is digital already, there are many banks that don't have physical presence and traditional banks are shutting down branches more than the open because branches are just the foot soldiers. There are also countries where cash is almost not used. Banks are not about cash, they are about credit.

I don't know what a "physical bank" means though, AFAIk there's no such thing and the buildings that banks own or operate would serve functions like hosting employees/clients/systems but they might choose not to have some of those.

[lotsofpulp]

>Investing customers money, create money.

And they can do this without a federal government backstop, just like an SP500 ETF does or a US Treasuries mutual fund, or an REIT, etc.

My point is the federal government need not provide a subsidy to these businesses that "invest" customer's money (or simply handle the underwriting of loans in many cases).

Right now in the US, via the Fed Funds rate, the federal government pays a business 5.5% just so the business then turns around and pays me 5.05%, all for keeping an entry in a database. And these businesses pay a lot of less discerning depositors a lot less. Surely the federal government can just give all 5.5% to people directly.

[mrtksn]

I wouldn't know about the legal structure you would like to invest your assets. Do it as you please, these things vary country by country too. The core concept is that you need to have some kind of structure for handling the money and a method to keep that structure in check.

The problematic part starts when someone acts outside of this structure, like employees who take customers money and invest with it without explicitly having a right to do that.

[gruez]

>There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman.

Banks' job isn't just keeping money safe and doing transactions. It includes maturity transformation as well.

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

[lotsofpulp]

I should have written "There really is no need for the charade of FDIC insured banks now that electronic databases are very solid technology."

I am not seeing the necessity of the federal government backstop to these businesses.

[gruez]

> I should have written "There really is no need for the charade of FDIC insured banks now that electronic databases are very solid technology."

What does this have anything to do with maturity transformation? Are you simply trying to say that we don't need banks to do maturity transformation, and they should stick to handling transactions?

[lotsofpulp]

I am saying we don’t need the federal government to backstop businesses just so people do not “lose” money.

Money is electronic, the government can handle electronic money accounts directly, and skip paying businesses for no reason.

Banks or whatever other financial businesses can continue to sell maturity transformation services, without FDIC insurance.

[robertlagrant]

> Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman.

Banks don't store money. They connect money to businesses in a structured way. No banks means businesses won't get created.

[Retric]

Fewer rather than zero businesses. Rich individuals could directly invest. Where banks shine is in making moderate risk investments which aren’t worth much individually but are a significant economic boost in aggregate.

Housing may be unaffordable, but people aren’t living in sod houses with dirt floors and no running water either.

[robertlagrant]

Going cap in hand to an angel investor for every £10k loan is not viable. And they don't have the levels of cash needed for this.

Why not use banks for this as well?

[Retric]

Get rid of Banks and many different things change.

Some wealthy investors would setup a lending operation using their own cash, based on historical examples of such. They would however need to charge higher interest rates than banks because they would be more capital constrained.

[lotsofpulp]

I specified an (FDIC insured) bank's role "in transmitting and keeping an account of money". There would be nothing stopping a lender from lending if the US government gets rid of FDIC insurance and just provides the people of the US electronic money accounts directly.

[robertlagrant]

Sure, but then what happens to the thing I said? How do businesses get loans? How much interest should be paid on that money, if any?

[lotsofpulp]

Supply and demand determine the price (or interest rate). Businesses get loans the same say any other business transaction happens. A buyer and seller hash out an agreement. This already happens all the time, even in the US (see investment banking).

If the lender, such as a bank, is any good at their job of underwriting, then they won’t need the federal government’s assurance to bail them out and they will still be able to attract funds from people seeking returns (and risk).

[robertlagrant]

> Businesses get loans the same say any other business transaction happens. A buyer and seller hash out an agreement. This already happens all the time, even in the US (see investment banking).

Yes, but a big way small business loans happen is with people's deposited money. You're naming alternatives, but not replacements. If my money is deposited with the government, then I have to go and find someone to lend to myself, and actually have the money removed from my bank account?

[lotsofpulp]

Yes, is this a problem? There are businesses that assist you with this already. Called investment banks. Or the government if you are looking for small business loans via SBA (and the government hires banks to do the underwriting, which the banks can still do).

> If my money is deposited with the government, then I have to go and find someone to lend to myself, and actually have the money removed from my bank account?

Also, you know the savings rate you earn at a bank is not because of the loans a bank makes, but because the government pays the bank. Why do you want your government to pay a middleman before paying you?

There was a time and purpose for this system, before instant communications and electronic databases. Now, those purposes have been automated away.

[klabb3]

Sounds like it could be a variation of the office space skit:

So what would you say you do here at the business factory?

[…]

I connect the money with the businesses because businesses are not good at dealing with money! I have people skills, can’t you see that?