Well, the bank is just a giant accounting exercise, that’s all it is. It isn’t doing something very clever, it’s just recording I owe you, you owe me, now I owe you a bit less, now I owe you a bit more, or something like that, and that’s literally all it does.
So, why do we put these banks up on pedestals as if they are the pinnacle of economic activity in the City of London whose wishes with which we must always comply?
The banks make the decisions about who gets to borrow. For what. At what price. A valuable function that has to be performed by someone.
I’m wondering if there’s a reason for this spat of anti bank blogging? Maybe he’s been invited to an interview without coffee with his bank manager to discuss an unauthorised overdraft or whatever banks do now when you warrant their displeasure *?
*An A.I. generated snot-a-gram perhaps?
It’s human nature to believe something you don’t know how to do is really very simple.
https://en.wikipedia.org/wiki/Dunning-Kruger_effect
This leads to the world being a very simple place in Murphy’s mind.
I don’t much like banks but they also have big fuck-off steel doors. He could try keeping whatever cash he has in his bedside table drawer but personally I wouldn’t do that and I don’t in principle mind paying a little sum for the BFOSDs.
They also have this other facility where the ‘bit’ in ‘now I owe you a bit more’ might equal £100k, or £1m, or £25m.
I am sure there are people even in Ely who might be prepared to lend him £100k to start a new business, but I doubt they’d be as gentlemanly as the banks about it if his new business were to fail which, let’s face it, it would.
I like the 5xW in his sentence though. Pompous, but correct.
He is right about not necessarily complying with the wishes of banks – or any big business.
e.g. we have wasted billions of UK £’s on “Cheap green energy ™”, complying with the wishes of those supplying the stuff and ignoring the wishes of those who just want a warm house for a sensible price.
Maybe spud would like to tackle those scams instead?
Why not allow the creation of a bank (ing system) for just recording deposits and acting as a payment processor? No fractional reserve lending. You can still keep the fractional reserve banks for those that want that risk. For those that want to opt out of that all they need is someone to keep an accounting record and process transactions.
@I sneeze
This pretty much already exists in the form of a piggy bank and a paypal account.
“Why not allow the creation of a bank (ing system) for just recording deposits and acting as a payment processor? No fractional reserve lending. You can still keep the fractional reserve banks for those that want that risk. For those that want to opt out of that all they need is someone to keep an accounting record and process transactions.”
I suggested that ages ago and got roundly laughed at as a stupid ignorant hick who knows nothing……….apparently its FRBs or nothing around here, God knows why.
I’m wondering if there’s a reason for this spat of anti bank blogging? Maybe he’s been invited to an interview without coffee with his bank manager to discuss an unauthorised overdraft…
Richard Murphy bouncing checks was my first guess as well, but I think it is simpler than that. Murphy sees any center of power outside The State as An Enemy. Banks qualify. They provide a set of services The State does not provide, and realistically, couldn’t provide (if for no other reason, the electorate wouldn’t stand for it, and business wouldn’t stand for it at all). And the fact that they are regulated, as opposed to being directly controlled, makes them a potential source of resistance. In Murphy’s view of The World As It Should Be, that is unacceptable.
Actually thinking about it I know why, if the FRBs had non-FRB competition they’d be screwed, every time there was a bit of an iffy moment in the economy everyone would withdraw their money from their FRB and stick it in a non-FRB. Thereby creating constant runs on the FRBs and destroying their business model. That would never do, so of course we have to stick with FRBs or nothing. Which oddly enough is kind of Spuds argument – the FRBs are telling us what banking we can have on the basis of whats good for them, not necessarily us, the customers.
“I suggested that ages ago and got roundly laughed at as a stupid ignorant hick”
Come off it, Jim. As I remember I recounted how the local Savings Bank of my childhood functioned, which was much as you demanded, and pointed out that it had folded itself into a commercial bank because the public didn’t want its specialist service anymore.
They presumably wanted higher interest and the ability to borrow. What a pity but there we are. You can’t buck the market.
We have non-FRB banking. Called a safety deposit box. It costs money too.
For a current account people want security of deposit (non FRB) and the ability to pay bills. Maintaining a computerised ledger (no cash) should be reasonably cheap to do with scale. Small monthly fee (a few quid) and payment processing transaction fees might work? If you want to earn interest buy a bond and understand you money has gone until to bond matures, or the bank sells it to another customer early so you get your money back. No FRB, 100% backed and loans made from bonds (the bonds could be as short as a day or as long as a perp. Whatever the market decides). FRB is part of the nominal expansion of GDP which the government uses to fund its largesse through inflation and fiscal drag. All the time distorting price signals in the market, screwing with time-preference and leading those close to the liquidity making out like bandits due to the Cantillion effect. We need sound money and sound banking.
I think I bank with a non-FRB bank, Tim. Wise?
““Why not allow the creation of a bank (ing system) for just recording deposits and acting as a payment processor? No fractional reserve lending. ”
Part of the reason is actually doing that is quite expensive. Every transaction has to validated. These days there’s due diligence to be done on all sorts of things, to conform with gov regs. Etc, etc, etc.And not surprisingly the public might be reluctant to be charged a hundred quid for a contactless payment for a pack of chewing gum. So the bank pays its costs from what’s made doing the other things.
BIS, why would you face such high charges? Current transaction charges for visa etc are 1-2%. The rest is just maintaining a secure ledger. Companies like Wise and Revolut can send money around the world in an hour to countries that high st bank don’t touch. We need a new and efficient model. Thinking along the lines that the old bloated banks would deliver this is misguided. They won’t want to deliver their own death knell.
isit
For a start you want bricks & mortar branches & whine miserably when they’re closed. There is simply no way that the business a branch conducts pays more than a tiny fraction of what it costs to operate it. Wise is simply an internet presence. In my case riding on the back of the physical banks I use. When I need banking services I transfer funds into the physical banks. They don’t benefit from holding my money. Just suffer the costs of processing it
Well, the bank is just a giant accounting exercise, that’s all it is. It isn’t doing something very clever, it’s just recording I owe you, you owe me, now I owe you a bit less, now I owe you a bit more, or something like that, and that’s literally all it does.
Sounds a bit like an accountant to me. Hardly a trade let alone a profession. All accountants should be on minimum wage. Grovel, grovel for your crusts you inky fingered peons.
Another example of the Great Potato being wrong – https://www.proactiveinvestors.co.uk/companies/news/1050087/rich-leaving-britain-in-record-numbers-suggests-new-report-1050087.html
It’s human nature to believe something you don’t know how to do is really very simple.
Most things are relatively simple to do.
Its the doing them really well that’s the hard part.
“Sounds a bit like an accountant to me. ”
When all you’ve got is fiat currency and FRB then banking has moved far away from being much other than accounting. The trouble is the inflation junkies get to tell the accountants that tomorrow 1+1=3 and they’ll keep the extra 1.
Jim
I love you dearly and your contributions here stand comparison with anyone but Dearieme has it.
TheModel you are advocating is offered (actually) by some Online banks. However back in the day those institutions offering ‘non- FRB’ banking services had management who see the vastly greater rewards on offer as an FR. And made the decision to move across, whether through demutualisation or acquisition: I don’t think such a business is viable now even as a private entity. As Tim says , the alternative does exist – it’s pretty impractical but that’s what’s left.
Congratulations to ‘steve’ who got up before 7am and got this comment on TRUK
“Am i right in thinking you were the first economist to say this? If so well done!”
Spud’s reply
“Amongst the first”
The set up had me laughing even before reading the faux modest reply.
“The Model you are advocating is offered (actually) by some Online banks. However back in the day those institutions offering ‘non- FRB’ banking services had management who see the vastly greater rewards on offer as an FR. And made the decision to move across, whether through demutualisation or acquisition: I don’t think such a business is viable now even as a private entity.”
Of course the other way the FRBs have managed to stitch up anyone thinking of starting a non-FRB is that they’ve convinced the politicians (probably ‘convinced’ them with lots of £££) to create a back stop – the £85k guaranteed amount in a FRB – so the FRBs get all the gains but socialise the losses. This means there’s no market for a non-FRB because for 99% of people you get that anyway via the bank deposit guarantee.
So in effect the FRBs have a HUGE public subsidy – ultimately the deposit protection system is backstopped by the tax payer as we saw in 2008/9. If every pound was at risk 24/7 in a FRB from day 1 of depositing then there would be a massive demand for non-FRB banking services, which people would be happy to pay for, creating a massive competitor banking system to the FRBs. But because the FRBs have got the taxpayer behind them offering free insurance, they’ve destroyed any value a non-FRB could offer, allowing the FRBs a free run at everyone’s money. Odd that, hey?
We used to have lots of mutuals, otherwise known as building societies, owned by their account holders who had equal obligations towards their savers and their borrowers often localised to a town or region. The long-term exposures to mortgagees financed by short term (relatively) deposits from savers and borrowings in the money market were maintained by very conservative and resticted business policies.
The huge bulk of them demutualised yonks ago and generally made a pig’s ear of the banking industry and were bought out but for Jim and others hankering after a better world (and it was better in so many ways) there’s still the Nationwide which describes itself as a British mutual financial institution and the largest building society in the world.
Now that’s a point of real substance, Jim. But what should be done about it?
I know; the govt could charge FRBs an annual fee for the insurance they are providing. If the FRBs can buy equally good insurance elsewhere they would be free to swap.
Anyway, the FRBs would pass the insurance cost on to their customers which would – in part at least – level the playing field.
Interested: «I like the 5xW in his sentence though. Pompous, but correct.»
I hope you’ll be reassured to know that unsurprisingly this is pompous, pretentious and grammatically adrift.
You’re giving him credit for avoiding putting a preposition at the end of a sentence, viz. “whose wishes we must always comply with” but he has now created a subordinate clause beginning “whose” left stranded without a verb (“comply” is governed by “we”) .
He should have written with whose wishes we must always comply which gives only 4×W.
Building Societies are fractional reserve. The Savings & Loan in It’s A Wonderful Life was essentially a building society, albeit in USian guise.
The banks are charged an insurance premium for the deposit insurance scheme.
This is what does happen.
Yes but it does occur that one of the dangers of bank runs is that the payment system stops working.
Has come close on a couple of occasions, notably when Gordon Brown saved the world.
So how do you isolate the payment system in a way that allows people to continue making at least transactions of every-day need? It’s been done, had to be done, in Cyprus, but it didn’t look fun, and lasted a long time.
Especially how do we achieve that once the overlords have achieved their wet dream of a cashless society (the purpose of which is probably to significantly hinder transactions between private individuals, to bring babysitting, grocery shopping and other favours into the taxation and GDP figures).
“So how do you isolate the payment system in a way that allows people to continue making at least transactions of every-day need? ”
By not allowing the FRBs to hold the country to ransom using the general public as a shield. The broad mass of the public should have accounts with non-FRBs, and the payment system they use should be independent of the FRBs. Then when the masters of universe blow up their banks, it doesn’t matter because Mrs Jones still gets her salary paid into her account and can pay her mortgage and her leccy bill.
By allowing the FRBs to have both the investment part of banking and the day to day paying your bills part under one roof means they can become too big to fail, and we all end up bailing them out.