Hacker News Reader

Comment by quantified | Hacker News Reader

The weird thing is that transparency about the difficulty at the bank is exactly what leads to the run. The incentives of the banking system are to hide reality in case of a financial breach. Whereas for a security breach, the incentives need to be to be forthright.

How's an executive supposed to keep the nuance of when to lie?

View on HN

There's a 2014 paper that describes this dynamic. Clients want deposits (bank liabilities) that act like cash, but they are backed by assets that have fluctuating values. Banks need to be "optimally opaque" to make this work.

https://economics.sas.upenn.edu/pier/working-paper/2014/bank...

Do they really? Isn't it only the interest rate that decides how much risk a bank wants to take on?

Couldn't I could open a bank, stuff your cash into my vault and charge you a negative interest rate to pay for guards.

You could, but that is not what "clients want".

I’d definitively signup if that was available, just ideally as a monthly fee vs a negative interest rate. Just like I’ll pay for my content over it being “free” with ads and/or worse dark patterns.

Which clients are these? Wouldn’t there be a set of clients, such as businesses trying to make payroll, who simply want 100% guarantees of money being there.

Sounds impossible. If the money is just shoved in a vault, the bank has to come up with money for rent/taxes, payroll for someone put the money in and take it out, etc. If the money is guaranteed to be there, then it can't be 100% of it.

Or we could just have a Fed Bank, where the dollars act like cash because they are cash... Upshot: No more middleman.

Officers of a publicly traded corporation aren't legally allowed to lie about anything financially material to the business. That would be securities fraud, and could potentially expose them to personal civil liability or even criminal charges. They might be allowed to delay announcing some material issues, but they can't outright lie.

There is a third option: they can get their ducks in a row and discreetly line up a solution _before_ announcing the problem. An executive making 7 figures p/a ought to know this.

> The weird thing is that transparency about the difficulty at the bank is exactly what leads to the run.

There are places where transparency does not work. I wish it did.

What good is a bank executive who can't?

Reply on news.ycombinator.com