Don't allow reselling mortgages and managers never earn bonuses for a higher rate of return. Don't even offer checking accounts, just savings accounts. Don't have branches.
Would we even need deposit insurance for such a bank?
PS: Banning companies from raising cash by selling off assets makes them LESS safe and robust to failure, not more. Do I really need to spell out why?
> if it ONLY wrote mortgages
> Don't allow reselling mortgages
If a bank only write mortgages and can't sell them what else do you expect them to sell? The office chairs?
My purpose there was to keep government or off budget government entity or corporation from buying any mortgages.
I have no problem with selling an asset, as long as government is not subsidizing bad practices by assigning an unrealistic value to something that is fraught with risk.
Selling a mortgage to private investors is not a problem.
If you did make the interest rate attractive enough to get folks whose job is shopping for the best interest rate, you’re in for serious bad news any time the bank falls behind competitively risked interest rates. It will see massive outflow of deposits, be unable to pay them, and have to liquidate its mortgages, potentially at a severe discount (they’re illiquid by nature, right, and may have declined in fundamental value due to e.g. interest rate changes in the interim).
Now your bank is failing and, as soon as you do the responsible think and report insolvency or inability to satisfy withdraws, instant bank run.
When a bank fails, the owners would lose their investment. But the assets of the bank, its loans, could be put into a public corporation and shares distributed to the depositors in proportion to their deposit.
Then depositors could sell and get 80 cents on the dollar or whatever. Or the depositors can wait awhile and sell when the markets recover. They might even make more than the interest they were promised.
Such mortgages are fundamentally sound, so for most people the sensible thing is to wait. They can also sell some and keep most to get through their own short term cash flow needs.
Of course, this is not a product for today's environment, as all depositors face zero risk of losing their principal.
People pay more for safer cars. Why wouldn't they give up some interest for a safer account?