Saturday, August 30, 2008

What I don't know about banking

London Banker reports that US deposit insurance looks compromised. I comment:

In my amateur way, I have suggested that we give up on fractional reserve banking for home lending and simply lend (create) money without any base at all (but with, perhaps, some State budget for how fast they can inflate the money supply). We're nearly there, but the current system is complicated by the expensive mechanics of taking in and returning deposits, and the threat of runs on the banks.

Perhaps deposit takers could be like the old Swiss banks and charge you for holding your cash, while the lending banks rot its value. Any votes for a separation of functions?

1 comment:

TBRRob said...

My feeling is that we have to make people aware of what they're getting into when they deposit their money.

Banks should be forced to declare how much of a person's money will be used by the bank when they open a new account.

Hopefully this would cause enough outrage that banks would begin to offer safer options where people can deposit their money.