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Comment by tarsinge | Hacker News Reader

Dumb question but is just keeping customers funds without investing them (even in bonds) and just collecting fees not a viable business model for banks? Is it a necessity or greed?

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Keep the funds in what?

There's about $2trn in banknotes https://www.uscurrency.gov/life-cycle/data/circulation and from my earlier reading of the FDIC statements there's about $24trn in total US bank deposits. So if you want to have everybody keeping their own individually serialled banknotes that's a non-starter.

You can keep it at the central bank, whether that's "postal banking" or "the deposit window" or "a CBDC", but that seems to be politically unpopular for incomprehensible reasons.

This idea is fairly popular with libertarians and people have tried to set up so-called narrow banks that do this, but the Fed blocked them from doing so because they consider it to be too important that banks invest their deposits and make loans. That is, the non-existence of the kind of bank you're talking about is the direct result of government intervention, and in fact pretty much all this crisis is (the bank failures were caused by the Fed's interest rate policies, banking regulations pushed banks to focus on default risk over duration risk, etc).

The only sources I can find about the Fed taking any kind of action against narrow or full reserve banks is on low-credibility websites with ideological agenda.

Can you describe what the Fed blocking action was and where I can read about it? I'm tempted to conclude that it doesn't exist without additional evidence.

I'm pretty sure most of the credible, non-fringe discussion of this was on paywalled financial news websites unfortunately.

What, like FT and Bloomberg? I didn't see anything like that.

The Fed literally banned a full reserve bank last month: https://www.yahoo.com/lifestyle/crypto-bank-custodia-taking-...

Also there was a narrow bank proposal the Fed banned in 2019: https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...

The Fed and other regulators greatly fear banks that do not justify their overreach (and also make existing banks look bad)

Thanks. The Yahoo article makes it seem more like the Fed was opposed to the cryptocurrency aspect than the narrow banking aspect. But the Matt Levine writeup is more apt.

The Fed always give all kinds of excuses but the real problem is that they are afraid that banks that can demonstrate that they are run-proof without government aid might outcompete government-backed banks.

Or, maybe, just maybe, you form healthy economies via the movement of money, and not by letting it sit in a box. You think that may be it since it follows standard, non-politically charged, economic theory?

This is very alarming. I want a place I can store dollars in gold equivalents and redeem them for dollars at will. I don't want new loans to be derived from my deposits. This is hardly an extremist position.

Well, then you expose yourself to gold price risk. Until the fed loosens their position on narrow banks or directly provides deposit accounts to consumers, this won't happen.

However, thanks to the yield curve being inverted, you can approximate this and make decent interest by rolling 4-week T Bills and putting all of your purchases on a credit card (effectively giving you net 30 payment terms).

> dollars in gold equivalents and redeem them for dollars at will

These are not the same thing and I would expect people on a tech website to know that it's not 1971 any more.

Simple solution: buy gold and store it.

100k$ of gold as 100g bars + their certificates of analysis/authenticity fits in a small lunch box. Bigger bars allow greater storage density, but are harder to offload.

The problem is you now are exposed to fluctuations in the gold market, and offloading gold in any sizeable amount is a pain in the arse.

Realistically, is it hard to sell a lunchbox worth of gold for its fair market value?

Depends on where you live. Generally, the answer is no. Gold is easy to move in pretty much any quantity. Local coin shops want gold they can move easily. In some areas that is gold in any form. In others sovereign coins are more popular than bars.

> This idea is fairly popular with libertarians

Which is ironic because it entirely relies on the Fed paying interest on reserves, which they never did until 2008 when they started as part of the bank bailouts.

Or it assumes away inflation, which in the dogmatic libertarian view is also a government-created ("archopathic"?) problem.

I can see why the government would do this - doesn't capitalism require a steady supply of capital?

In that it's theoretically possible of course.

The problem is inflation and the lack of interest rates means that just holding cash is a losing proposition (inflation will eat away at it).

With inflation running at 9%ish percent if you hold 20K for 10 years at 9% inflation, it's real worth at the end will be ~8.5K.

That risk belongs to the depositor though.

No, the banks goal is to make money, if their assets keep devaluing it is also their problem.

Question is level of these fees. If they were to charge let's say 0.5% on any deposit of any scale it might work.

With current levels of normal account fees, likely less so. There is lot of staff and operational expenses even if these were set at minimum.

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