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> A good example is that when it was proposed that one should be able to transfer their account number to another bank (as telecoms have to do for phone numbers here in Finland at least), the bank lobbyists said this is technically impossible, which is of course ridiculous.

If you mean the bank account numbers used within Finland, sure, they can be changed. In the new system, there will be country-wide database which will now indicate which bank each account number is associated with. But your account also has an IBAN number, which has country and bank/institution identifiers. Those will have to change if a customer moves banks, absent an international finance law change.

And my understanding is that its quite common to use IBAN everywhere. So you won't really solve the problem. Just add another layer of complexity.

I mean't that you can't change the bank and keep your old account number. IBAN is just the "Finnish" number with FI prefixed and check digits appended. Though probably the old numbers too have per-bank allocated prefixes. BIC identifies the bank.

As far as I and a quick web search know, you can't make any of these refer to an account in another bank.

Is IP over MAC or DNS over IP just another layer of complexity?

The point is that in your proposed system in which the customer keeps their local bank account number when moving banks, there will still be places where the customer will have to change their number - i.e. everywhere where their IBAN is stored. The IBAN cannot remain the same, because international institutions need to know which institutions they are dealing with. Not all institutions are legally allowed to or want to transact with all institutions.

So the added layer of complexity is that customers will have to change their number in some places but not in others. And banks will have to have a system of ensuring they match the right IBAN with the right local account number. Whenever this fails, there will be problems such as delays or money being deposited in wrong accounts etc.

This is unlike DNS over IP, which is universally/internationally agreed protocol which has 100% coverage. But even in that system, whenever you change your DNS settings, it takes a while to propagate, and in this time there are all sorts of weird errors. Cat picture websites can tolerate those sorts of errors. Financials institutions should not.

Can't Finland register the whole FI prefix as institution "Finland"? If other countries' institutions need to know the actual institution, well... it wouldn't be the first time two countries had conflicting requirements, and politicians had to get together and yell at each other a bunch and suddenly a law was passed to solve it.

You mean universally/internationally agreed protocol and maybe a set of laws like e.g. IBAN?

The bank numbering system was indeed a static routing code, like phone numbers were in old landlines. Why the former can't be changed but the latter could?

Of course the IBAN system can be changed. It will just require a revision of international treaties, which will require dozens of countries agreeing to it. Finland has little control there.

> A good example is that when it was proposed that one should be able to transfer their account number to another bank (as telecoms have to do for phone numbers here in Finland at least), the bank lobbyists said this is technically impossible, which is of course ridiculous.

This comparison doesn't make a ton of sense. Of course you can transfer your phone number - every phone number is mandated to be unique across all carriers. Bank account numbers are entirely internal to each bank and made up based on various arbitrary factors. What if the bank you want to move to already has an account with the same number as your account at your existing bank? How would that work?

May depend on the country, but at least in Finland the account numbers have been unique across banks for ages. The first part refers to the bank (actually a branch at least back in the day) and the last part to the account within the bank. There was and is no need to specify the bank separately.

The mobile phone numbers had the same system. Three first numbers signified the operator, but the whole number it can now be transfered to another operator.

This is not hard stuff. The numbers aren't magic, they're just identifiers. We're not bound to mechanical routers or card sorting machines anymore.

> When you have literally a license to create money out of thin air

This is a common but slightly misleading interpretation of fractional reserve banking.

If I lend you 100 bucks and you lend those 100 bucks to someone else, you’ve “created 100 bucks” in a monetary sense. But it’s not coming from thin air, from an accounting perspective it’s just a debt moving from one person to another

There are no fractional reserve requirements anymore. And (almost) all money is debt anyway, even by definition with some definitions.

"As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions."

https://www.federalreserve.gov/monetarypolicy/reservereq.htm

There are lots of reserve and stress testing requirements on banks, and banks are usually public companies whose finances their investors can read, and they often fail when the investors decide the finances look bad.

https://www.investopedia.com/terms/b/basell-iii.asp

There are, but the lack of reserve requirements make the widespread idea that banks are lending other people's deposits out is even more wrong.

The effectiveness of these "stress tests" remain to be seen. There was widespread trust for the "financial innovations" "pricing risks" until the system turned out to be a total scam.

there are still capital rserve requirements. but imagine we ignore all of that: yes, so they're lending out 100 bucks from the 100 bucks i gave them. they're still not "printing money" - everything they give is what i gave them

you're forgetting the next person they give that 100 bucks to, deposits that money (if not completely spent) into a bank, which is again used to lend out more money.

Yes, but when I deposit $100 with @Bank (ie, effectively lending $100 to the bank), they aren't loaning out $10 to a couple people, they're lending out $100 to a couple people, because they did the math and figured that they can get most of those people to pay them back before I ask them for my $100 back. This is all well and good, but they really are creating money out of thin air when they're loaning out more money than they actually have on hand.

This makes no sense. If the bank lends $100 each to two people, it has to be prepared for them to take that money and spend it more or less immediately - on a house, or payroll, or whatever. When you put your $100 into the ATM, and two people get $100 bills from the ATM, where does the second bill come from?

The bank lends an amount at 7%. The individual immediately pays the full amount into someone else's bank account. If the bank needs cash (which it probably doesn't on a day to day basis because most of its depositors leave money where it is) it can borrow that amount from the other bank at 5.5% and profit from the margin. So the amounts are eventually consistent.

That's the basic logic: modern banking adds in a central bank that guarantees that it will lend enough to solvent banks at 5.5% to meet their customers' withdrawal requirements even if everyone pulls money out, banks treating each others' credit as equivalent in value to cash because they can always convert it, and a bunch of rules about lending needing to be banked with bank capital and other weighted assets to keep lending growth from being silly.

yes exactly. whereas the person above was arguing that they can just lend out money that wasn't deposited, which is pure fiction

Only something like 10% of the world's money are physical bills and coins. The rest is electronic, just numbers in reputable databases.

The bank can rely on this fact. It only needs enough notes to support a likely amount of physical cash withdrawals each day.

> The rest is electronic, just numbers in reputable databases

yes, but they can't fiddle those numbers. if you deposit 100$, they can lend up to 100$. no more

That's not how the banking system works in theory or practice. It hasn't worked like that for a very very long time.

Lending isn't limited by deposits, it's limited by central bank regulations.

Here's what the Bank of England says [0]

> if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.

> Regulation limits how much money banks can create.

Banks only need to maintain enough deposits to cover their liquidity needs - what they need to pay people withdrawing cash and what they need to transfer to other banks due to electronic money moving.

[0] https://www.bankofengland.co.uk/explainers/how-is-money-crea...

> it has to be prepared for them to take that money and spend it more or less immediately

Right, but the bank also knows that people are doing the exact same thing with other banks; borrowing money from the other bank which will get spent immediately back at this one.

Banks are prepared to meet the difference in money in and money out, they're not prepared to meet the total volume of deposits. When the bank gets this wrong there's a liquidity crisis (or a bank run) which causes Big Problems.

> they're lending out $100 to a couple people

no they're not, they're loaning out 100$ total. they never have loaned out more than they had on their books, it's not possible

Banks can and do loan out more money than they have on deposit; they borrow from the central bank in their jurisdiction when required.

https://en.wikipedia.org/wiki/Fractional-reserve_banking

In The Netherlands there is an interbank "bank transfer" service (https://www.overstapservice.nl/, Dutch) where if you move to another bank, your old one wil automatically forward transfers and debits still arriving at your old account to the new one. Also the new bank can notify companies about your new account, and these companies will change your account number in their systems.

It's good that it's there and it is used widely, but it hasn't fundamentally made banks suck less.

I think the bottom line is that current accounts for individuals are mostly a "loss leader" product for banks. So, keeping costs down (e.g. the tiered support system) is very important. The actual money is made on other products (loans, mortgages) and especially on corporate clients.

Former chairman and a major owner of Finland's largest private bank, and essentially a real life Gordon Gekko, literally said that ordinary customers bring only the sand from their soles to banks.

And that's probably getting truer by the day when they don't need even fractional reserves to just create money.

> When you have literally a license to create money out of thin air

Well, you can loan out some amount of money that you don't have, hopefully get it returned to you with some interest.

That's not how it works. When a bank makes a loan, the customer will use it to buy something (say, a house), and probably the money will be put in a different bank. So the money definitely needs to be there, to pay the other bank.

There's a deposit in the other bank, along with the payment. Both of which are "money."

So, a bank can create money from thin air by making a loan, but typically not for themselves. It happens in a different bank.

I want to make it a point that EVERYONE CAN DO THIS. Everyone can make a loan, everyone can count their un-returned loans as money if they want to, and everyone can accept transfers of other people's un-returned loans as payment if they want to. The only special power banks have is that most people accept them doing this. If your whole friend circle accepts un-returned loans from each other as payment, then you're all doing fractional reserve.

The special power is the banking license they get from the government. Try to do it without and you'll find yourself in prison quite soon. Especially if you do it in official currency.

No, I don't need a banking license to loan my friend $10.

The difference is that licensed and regulated banks can scale it. Retail customers can trust them due to their long-standing reputation, their banking licence and linked to that, the FDIC insurance.

Yes, but this only grants the ability to scale it, not the ability to do it.

We don't say that only licensed restaurants can cook food.

If enough doesn't get returned, the gov/centeral bank gives it to you as a bailout. And for many loans you automatically get it from the gov if the debtor can't pay.

> If enough doesn't get returned, the gov/centeral bank gives it to you as a bailout.

No, the gov/central bank will give it to the people you borrowed money from as a bailout.

Your equity will be zeroed out, your executives will all be fired, and your customer accounts will be fed to another bank.

No, that's not how it works. They did this a few times, even a few high-profile cases, but the vast majority of times they just gave money to the struggling bank.

That money comes from the FDIC insurance fund, which comes from other banks. It's not printed or coming from taxpayers.

Anyway, a "bailout" is when you give money to equityholders. They often lose money in situations people call "bailouts" even though they're literally the opposite.

Citibank was bailed out, the stock rose over 50% overnight and the CEO got paid hundreds of millions.

You realize bailouts are loans, right? They aren't just free money.

There were many forms of bailout for Citibank (and others). Some were (extremely favorably termed) loans, some government backing of their bad assets and some were buying stock that the market didn't want to touch.

May or may not be technically free money, but for sure Citibank doesn't hand out loans to bankrupt customers on such terms.

The gov could have e.g. let Citibank go bankrupt and just take it for free. Like banks do to their customers.

Citibank shareholders got diluted, and Citibank paid back for that bailout, with the taxpayers profiting ~12 billion in total.

If the money couldn't have been paid back, the shareholders wouldn't have been diluted.

They would have been wiped out.

If the gov wouldn't have bailed out Citibank the shareholders would have been wiped out in the first place. And gov would have gotten it for essentially free if wanted. It was not like they saw that here's a great investment opportunity to make profit for taxpayers.

> If the gov wouldn't have bailed out Citibank the shareholders would have been wiped out in the first place.

And also the entire economy would have collapsed, and we'd all be trading ammunition for bottlecaps, instead of merely living through a nasty recession.

Which is why they backstopped it. Yes, it would have been cheaper to let Citi fail and nationalize it, but it wouldn't have been cheaper to then have to deal with all the contagion and all the other businesses that would have exploded because of it.