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.
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.
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
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.