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Comment by lordnacho | Hacker News Reader

Well I agree with your two asterisks. The thing that gives rise to it is that people who are deciding on what to do about the rising rates are all incentivized the same way: write new loans or lose your job. Each bank has its own set of customers, strengths in marketing, and so on. The loan officers then choose the best of that pool. If that means firms that are at greater risk to rising rates, they still pick the better credits out of the ones they are presented with. It's basically a mugs game.

Gathering everything in a big bad bucket is indeed just hiding it until the next crisis. Gotta wonder what size of crisis this will eventually cause, not sure if I want to be around when it happens.

But:

> People famously have the political systems that they deserve.

I'm not sure most people through history or right now really have had much say in what political system they live under.

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I struggle to understand why there is no "deposit banks" category which would include heavy regulation, with full reserves required.

There is certainly a significant number of people who just want to keep their money safe. They would happily pay 50 or 100 USD per month for an actual bank service where your money is just stored and not lend out to someone else.

Isn't this called a "narrow bank"? Maybe I'm mixing terms but I've heard the idea.

Yep, same concept. Wish I had a link to the article handy, but there was actually a bank (TNB if I'm not mistaken) trying to do exactly this that got blocked by regulators.

They gave very little explanation for why the application took dramatically longer than normal before eventually being rejected. I believe the reason effectively boiled down to "we don't like your business model"

I think you're describing "narrow banking". It doesn't exist in the US because the government doesn't allow it. As I understand it, they don't allow it because it would be obviously better for deposits individually, but would slow down the economy as a whole by driving up the price of loans, since all of the deposit money would suddenly be unavailable for lending.

Specifically, the Federal Reserve doesn’t allow it. They are explicitly stoking fractional reserve banking by preventing narrow banking, leading to this performative art (deposits backing fractional reserve lending, FDIC oversight, etc).

“Can we have narrow banking?” “No!” “Okay, how about not taking actions that cause massive consolidation in the banking industry and systemic issues?” “Also no.”

Spot on about cheap deposits funding lending and bank ops.

https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...

Before digital payments or online banking, it was common for an average Joe to keep much of what would otherwise go into a checking account in physical cash. In modern amounts maybe $5k at the high end or $500-2k on average. It didn’t seem to prevent the system from functioning; I certainly can’t seem to draw a direct conclusion between shifting to a cashless economy and the living standards of an average personal directly improving as a result of lower cost of capital, unless they had assets that would benefit from easy/low-rate credit access like a house.

If the Fed keeps trying to fix failed banks through indirect money printing (covering uninsured deposits by overpaying for treasuries/MBS) they could lose control of inflation and be unable to further raise rates. That seems like a worse outcome for the average person than a slightly higher cost of capital from banks having to compete with narrow banking. And the Fed should hope for narrow banking at that point because it would be the easiest to manage compared to the other options like physical cash, crypto, and other currencies.

Yeah, the amounts they're worried about are a few orders of magnitude larger than that. I don't think that's a compelling counter-example.

> If the Fed keeps trying to fix failed banks through indirect money printing (covering uninsured deposits by overpaying for treasuries/MBS)

Is this happening? The uninsured deposits are being covered by the FDIC insurance fund, which is funded by the banks. None of it is coming from the fed.

Custodia Bank is trying to do this in Wyoming.

The Fed is trying to stop them at all costs.

> There is certainly a significant number of people who just want to keep their money safe. They would happily pay 50 or 100 USD per month for an actual bank service where your money is just stored and not lend out to someone else.

Realistically, who would these people be?

$50-$100/mo is quite a substantial amount for just a banking fee, so it would have to be people rich enough that it's not a showstopper. But people that rich have no problem moving their money to investment accounts where they can do much better on return, so they wouldn't be customers of this.

The vast majority of society doesn't have 250k+ on their bank account. Hell for most this is barely news as long as the US government keeps their FDIC insurance promise.

America is no Argentina or Lebanon.

People cannot wait for the aristocracy to surrender power to them. Throughout history there is exactly one way to make some say in the political system.

So the big problem was the Fed increasing rates quite dramatically, signaling this, and the banks not properly having a t-bill ladder (ie, buying a mix of short&long term securities instead of just long-term treasuries)?

Adding lots of high-value accounts & making lots of loans is one thing, but diversifying the investment appropriately should be mission #1 for funds.

More centralization would mean more government interventions and bailouts. That means socializing the losses.

If the excrements hit the atmospheric propulsion devices, governments can always re-institute a gold standard, but that just moves the pain from the haves to the have-nots.

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