So, I am in no way a banking expert, but just this afternoon I started thinking about banks. Here is my train of tought (hopefully readable).
Banking nowadays is making money with money. The money they use for this is money which is given to them in trust by normal people, corperations and even the state. The moneymaking proces is quite simple. Money is lended to other people and interest is charged. This money is in part given back to the people who have given the money to the banks in the first place (the costumers). However, the interest rate paid by the bank is lower than the interest rate paid by the borrowers. That is how the banks make money (probably quite simplified, but it is sufficient for the purpose of this post).
Banks are corperations themselves, so what they need to do is turn a profit and keep the shareholders happy by maximizing said profit. This creates a problem, namely the creation of so called "products" that non-lawyers cannot understand, lowering of intrest on bank accounts and hightening intrest on loans. This all in order to maximize profits. The costumer has no choice but leave the money with the banks because there is no alternative. You cannot keep all your money in your home, that would be a really bad idea for obvious reasons. Without a bank account, you cannot recieve payments or make payments, because most money related buisness is done electronically these days. The banks, even tough they try to make money with our money in the worst possible ways, are a nessecary evil.
Since banks are such important entities, I feel like we cannot leave it in the hands of corperations, so how about non-profit banks? These banks need to make enough money to build and maintain their infrastructure, but would be forced to invest most, if not all, of their profits in their infrastructure. This means that they are free to innovate when they are doing well. One of the "products" these banks could offer is being a sorts of broker between parties to let them get to a lending contract. As compensation, the bank would recieve a certain percentage of the intrest paid.
The ideas might not be revolutionary, maybe even really old (like medieval or before), but I feel like this would actually be a fairer system. Some things are way to important to leave in the hands of corperations, but also too important to leave in the hands of the government.
Anyways, thanks for reading and please share your thoughts on this.
Perhaps a Credit Union would be more to your liking. They aren't a non-profit organization but the profits they do earn are distributed to their shareholders, i.e. their customers. from this wikipedia link: Generally speaking, credit unions see themselves as of "higher moral ground" than banks; they feel that they are "community-oriented", and "serve people, not profit".
Hmm, I'll have to look into that. Thanks for the suggestion.
The intention of a bank (retail/traditional banking) is to act as a intermediary between savers and lenders. Without this intermediary, there are enormous search costs and default risk. The bank is suppose lower search costs and to do due diligence to ensure only loans are made out to credit worthy borrowers. They are providing a service and should be paid accordingly. This is what traditional/retail banking is. Hopefully that didn't come across as attacking your post, but the 07-08 financial crisis had a lot to do with the non-retail banking sector acting like the retail banking sector without the regulation and capital requirements. Mortgages use to originate from retail banks to the customers, but investment banks began packaging mortgages together and this allowed rates to be reduced (good innovation that helps in home ownership). However, with mortgages being quickly shipped to the next party, (retail) banks became increasing lax (as they would not be holding onto it). Long story short, these products were treated as very safe securities and used as collateral in the overnight market. Lots of incentive issues, regulation, and other problems led to the financial crisis. The retail banking model is however very standard and I don't think there is any issue with it (although you could make points about being ripped off in fees, etc., I am just referring to the basic framework of retail banking).Since banks are such important entities, I feel like we cannot leave it in the hands of corperations, so how about non-profit banks?
One of the "products" these banks could offer is being a sorts of broker between parties to let them get to a lending contract. As compensation, the bank would recieve a certain percentage of the intrest paid.
I get frustrated by fees, fines, etc., but the thing that makes me uneasy about their system is the leveraged nature of the whole thing. Don't get me wrong, I know that in some way, it has to be done, but I think they are overstretched. I'm clearly no economist, but the idea that my bank can lend out like $15 for every $1 it has in deposits seems strange to me. I feel like it is an inflationary worm that just keeps crawling out of control. It doesn't sit well with me that they can earn interest on such a huge multiple of money they don't actually have.They are providing a service and should be paid accordingly.
Exactly this is what worries me and it is the exact same problem which the little girl talked about. (shamelessly ripped from thenewgreen's reply) I'd like to see this changed for a safer economical system, but it seems I would like to see quite a lot changed...I'm clearly no economist, but the idea that my bank can lend out like $15 for every $1 it has in deposits seems strange to me.
It doesn't come across as attacking. I am here to discuss and learn, not to force my views upon others. If I wanted to do that, I would have to seriously reconsider my career choice ;-) I have been thinking this over, and it seems like you are right. The traditional system is a reasonable system. The bank acts as a safeguard for the costumer (unless the bank fails) and receives money for making the right calls. Yeah, I can agree that this is indeed a valid and sustainable business model and actually providing useful service. But how about the power these banks have over people (even when we don't take fees, fines etc. into account). The whole financial lives of people are dependant on checking accounts they have with one bank. I am talking about the infrastructure. If I don't want to hand over some power over my own money or when banks don't want to accept me as their customer, I cannot participate in society. I cannot receive payments nor can I make them. That is also part of what worries me, not just fees and fines. It's the tremendous amount of power these banks hold.
Canada has a National Bank, but I don't know too much about it. (EDIT: My mistake. As bgritzut points out, this is actually their Central Bank, not a national bank that serves the public.) Personally I think a National Bank might be an ok option while retaining private banks, but IMO most of these problems are actually political ones. Lobbying is how our banking system gets the leeway to behave badly for profit. Repeal of Glass Steagall is a prime example of this. So many problems we have with corporations are actually symptoms of a corrupt political system. Money buys legislation these days, and corporations have the money and the motivation to get laws passed in their favor. Banks have plenty of money, of course. That said, I think technology might enable a more efficient system of loans and investment, whereby crowd-sourcing cuts out much of the middle management.
Technology might indeed provide solutions (like bitcoin), but we cannot hope for miracles. Technological advances are mostly stopped by politicians. It is a bit like the recent SOPA, PIPA and ACTA. They are designed to stop or even undo technological advances. Unfortunately, lobbying is effective for both the good and the bad causes, especially when you have a lot of money, as you say. A bank without money ain't no bank.
Banks get rewarded (collect that difference between savings and lending) for properly allocating funds. A customer always has a choice to go to another bank that is giving a higher savings rate or lower interest rate on a loan. Competition will result in better rates and better allocation of capital. If they were to be "forced" to invest most of their earnings in infrastructure or anything else for that matter (i.e. they don't have the choice to do what they want with their money) I assure you that you would have worse allocation of funds, higher rates of default and a worse off banking system. This statement just seems baseless.
Since banks are such important entities, I feel like we cannot leave it in the hands of corperations,
What are corporations besides a group of people who are on their own accord decide to invest or work for one entity.
What I meant with the statement is that people are really dependant on he infrastructure the banks created. Like the internet, you don't want it to fail (which can occasionally happen), but you need to have access to the system in order to participate in society. So, when you have a system which is build by people whose only goal is to make money, they will only do the least possible maintenance to sustain the system and make more money. You also see this happening with the US power grid. Also, the free market isn't always the answer. Some sectors just work better when under strict control.