Should we pay for banks and their risk taking?

[bayyildiz]

I just saw this Danish CEO give this interview and he has some really interesting points, so I have translated them to English for you: 

What do banks actually do with our money ? 

If we have USD 100 in the bank, there is no USD 100 with our name on it, they do not exist 1 to 1 like, for example, cash does. When you put the same USD 100 in the bank, they take USD 10 and put them in the central bank and they spend USD 90 on lending to others who need a loan. The people then pay interest on their loans and the bank makes some money on their bank operations.

If a financial crisis was about to hit us and everyone wanted to withdraw their money out of an ATM, then there would be bank runs and crisis. Our money is not ours if we keep them in banks, if it's not a full-reserve bank.


For example, a couple of years ago, a crisis happened in my country, and everyone ran to the ATMs to get cash. Banks were so close to bankruptcy in a matter of  couple of hours.

Every ten years, there is a big banking crisis, and after it is solved by regulators and it harms a lot of people, we still continue to pay for banks and their risk-taking with our money. Where we keep our own money and where we can borrow some money when needed doesn't have to be the same place necessarily.

I think crypto or a full-reserve digital banking system would be a revolutionary solution for this, and the popularity of crypto comes from the distrust in the system as a whole.
What do you think about this? Is this traditional banking system necessary for order, or would we all be better off with a decentralised digital system?

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[mk4]

At least for now, it is necessary. Because while there are definitely a lot of people that are 100% bitcoin/crypto, definitely not everyone is willing to take the volatility risk. Not to mention not everyone is technologically literate to hold their funds securely.

In terms of usability and knowing the risks you've mentioned, banks aren't THAT bad for use. It's just that I don't think you should be putting literally all your wealth on a bank.

[zanezane]

In terms of usability and knowing the risks you've mentioned, banks aren't THAT bad for use. It's just that I don't think you should be putting literally all your wealth on a bank.

Nothing wrong with putting all your money in the bank, you still have a choice to let it stay there or make it as a way point so you can make other investments, I mean stock market needs you to have a bank so that they have a way to transfer the money to you.

[mk4]

Nothing wrong with putting all your money in the bank, you still have a choice to let it stay there or make it as a way point so you can make other investments, I mean stock market needs you to have a bank so that they have a way to transfer the money to you.

Nothing wrong, until the bank decides to screw you over for whatever reason. Such occurrence is not super common, but it's a lot more common than you think. It's like saying "it's ok to leave all your funds on a centralized crypto exchange because you can withdraw anytime".

[NeuroticFish]

Nothing wrong with putting all your money in the bank, you still have a choice to let it stay there or make it as a way point so you can make other investments, I mean stock market needs you to have a bank so that they have a way to transfer the money to you.

Nothing wrong, until the bank decides to screw you over for whatever reason. Such occurrence is not super common, but it's a lot more common than you think. It's like saying "it's ok to leave all your funds on a centralized crypto exchange because you can withdraw anytime".

"All your money" is a broad term, but, at least in Europe, if "all your money" is under 100k EUR/person/bank, your country's central bank will have (by the law!) to find a way to reimburse you fully, making it pretty much safe.
Of course, inflation will still erode the value of that money... Nobody protects you from that...

[mk4]

"All your money" is a broad term, but, at least in Europe, if "all your money" is under 100k EUR/person/bank, your country's central bank will have (by the law!) to find a way to reimburse you fully, making it pretty much safe.
Of course, inflation will still erode the value of that money... Nobody protects you from that...

The recommendation against leaving all your money in a bank is not only solely for the protection of your money, but also as a recommendation against holding 100% in fiat.

And yea, not sure how it works in the US but good for you Europeans. I still wouldn't be totally confident even with such "protection" though. There's just something about this year and last year that makes me a lot less confident with governments and banks.

[bitmover]

At least for now, it is necessary. Because while there are definitely a lot of people that are 100% bitcoin/crypto, definitely not everyone is willing to take the volatility risk. Not to mention not everyone is technologically literate to hold their funds securely.

Additionally, you don't necessarily have to put your money in banks or in cryptocurrency.

There are plenty of alternatives. For example, you can buy treasure bonds, which would be the same as keeping money in the government, which is a lot safer than keeping money at banks. (if government can't pay you, they will just print the money and give it to you, you will lose money due to inflation, but better than nothing. Banks can't do that.)

You can also buy stocks, which have nothing to do with banks. And, of course, precious metals such as gold.

Banks are usually custody agents when you have stocks depending on your  country legislation, but you are not exposed to the bank risks and system mentioned above.

[NeuroticFish]

but also as a recommendation against holding 100% in fiat.

That's a topic I cannot argue with  

I still wouldn't be totally confident even with such "protection" though. There's just something about this year and last year that makes me a lot less confident with governments and banks.

True that, but as long as the state exists, there will be money. If nothing else, they just print more  

But, seriously, I totally get your point: the current state of world economy, it's lack of stability, it's pretty much unsettling.
Still, if the things go south, I'm not convinced it Bitcoin will do (for short/medium term) any better.
I don't know what would be then the actual correct safe investment.

[bitmover]

Still, if the things go south, I'm not convinced it Bitcoin will do (for short/medium term) any better.

I agree. We have seen that in corona virus crisis bitcoin also perform badly (probably people were selling it to buy stocks that were cheap).

I don't know what would be then the actual correct safe investment.

Nobody knows. This is why diversification is important. You don't need to marry with bitcoin or to banks or to stocks or gold. Just buy all of them. If shit happens, you will be exposed to all kind of risks, and (theoretically) your losses will be compensated by your gains.

About stocks, IMO they are the better form of diversification. There are good ETFs such as SWDA which have exposure to more than 1500 companies over most developed countries, for example. Can all the 1500 biggest companies in the world break together? Yes, but that isn't very likely.

[yazher]

In terms of usability and knowing the risks you've mentioned, banks aren't THAT bad for use. It's just that I don't think you should be putting literally all your wealth on a bank.

Nothing wrong with putting all your money in the bank, you still have a choice to let it stay there or make it as a way point so you can make other investments, I mean stock market needs you to have a bank so that they have a way to transfer the money to you.

We cannot put everything we have in the bank as we have seen we saw some scenarios on what has Afghanistan has been when they were in chaos. they closed the bank and as soon as it open again, the people storm outside as if they won't gonna risk putting their money back in the bank again. We need to make sure that we have some extra money and wealth we put on different sources. so that we can have some good escape whenever there will be a chaos in our country.

[so98nn]

I agree on this and also had similar thread/discussion few months back. Obviously it is clear case study that banks are devils of financial system. They run the system with luring offers. You missed one thing here. They also offer us credit cards to which almost every single job person is addicted.

There is huge trap system for this too.

Whenever you join a corporate world , then your employer will have bank agent ready to make your bank account who will provide you with credit cards, DEMAT accounts and what not. Then slowly you will find out that your salary is not enough to survive and then you see CC as the life saver. Peeps give so much importance to CC that they actually end up spending more than what they are earning and on top of that they need to pay off more money to the banks.

It’s serious trap system which they have planned since years.

[DdmrDdmr]

<...> in Europe, if "all your money" is under 100k EUR/person/bank, your country's central bank will have (by the law!) to find a way to reimburse you fully, making it pretty much safe. <...>

I really wouldn’t want to put that to a test on a scale of a large bank, with a domino effect on various other banks. Banks contribute to a deposit of guarantee with something like 0,8% of the covered deposits (in the process of getting to that figure yet). If things were to go really wild, there’s no way they’d be able to cover the guarantee with that 0,8%, and less of all in the short timeframes they’ve set. In dire needs, they’d probably promptly install a legal framework to allow deposit repayments to be made in some sort of state debt, with an x year payment horizon. Don't get me wrong, the guarantee is important, as should work as long as things don't get too dire.

See: https://www.consilium.europa.eu/en/policies/banking-union/single-rulebook/deposit-guarantee-schemes/.

[lovesmayfamilis]

Much depends on the country of residence. There are countries where it is difficult to trust banks. At the same time, bitcoin in such countries is also not popularized or government regulators act on it. And what do people choose? Most prefer fiat. No banks and no cryptocurrencies. There is no right recipe here. Risks are everywhere. Therefore, diversification works perfectly in this situation. But of course, it is always easier for large holders of funds with their investments. But if we talk about a simple average person, then choosing and giving preference to fiat will come first.

[mk4]

But, seriously, I totally get your point: the current state of world economy, it's lack of stability, it's pretty much unsettling.
Still, if the things go south, I'm not convinced it Bitcoin will do (for short/medium term) any better.
I don't know what would be then the actual correct safe investment.

Yep, same opinion. But regardless how uncertain the markets are (including bitcoin), it's still great that we have Bitcoin. It may or may not end up in our favor, but it's great to have more options!

A response of mine earlier regarding bitcoin in a bad economic situation:

And yea, I'd like to think that bitcoin will do good as well, but I'm really not betting on it and I'm not that confident. There's just too much weak hands that I wouldn't be surprised if people would dump when needed to; not to mention that a lot of retail look at bitcoin mainly as a get-rich-quick investment and not necessarily an economic hedge in the first place.

[NeuroticFish]

In dire needs, they’d probably promptly install a legal framework to allow deposit repayments to be made in some sort of state debt, with an x year payment horizon. Don't get me wrong, the guarantee is important, as should work as long as things don't get too dire.

This is indeed a good point. Still, even with a multi-year payment horizon is better than completely losing those funds.
I still find the banks a better option than burying the money in the backyard.
Of course, if we look at that as investment, there are better options though, if one has the knowledge and willingness for that. Even bitcoin is not for everybody.

regardless how uncertain the markets are (including bitcoin), it's still great that we have Bitcoin. It may or may not end up in our favor, but it's great to have more options!

A response of mine earlier regarding bitcoin in a bad economic situation:

And yea, I'd like to think that bitcoin will do good as well, but I'm really not betting on it and I'm not that confident. There's just too much weak hands that I wouldn't be surprised if people would dump when needed to; not to mention that a lot of retail look at bitcoin mainly as a get-rich-quick investment and not necessarily an economic hedge in the first place.

Sure. Bitcoin is great in all aspects, whether its price will fall greatly or not when the banks and markets will get into trouble.

As you've seen in my other post, I expect Bitcoin price go bad only for short/medium term. For long term, it has shown until now a wonderful capability to come back, and not just recover, also get easily to new ATHs. Just the problem is, how long is that "long term"? We are not wealthy enough to be nicely diversified, hence the crisis, when it will come, will hurt us.

And the weak hands are no longer that powerful/relevant imho. But, as you also said, I am not confident that even MicroStrategy will hold no matter what (and that can happen even in a bear cycle, not necessarily only in case of a world economic crisis).

[cotton ball]

should we pay the bank, and the risk, maybe for now we have to follow such a path, because for now we still need a bank, and an active currency, maybe in a country there is no need to do all that, because their government has done it others to save their money..

[Kong Hey Pakboy]

I don't think we shouldn't but we have no choice about that thing because they're backed by the government and even if we force our ideas that banks shouldn't do that, that's their lifeblood and to some extent the lifeblood of the country too.

[indo1]

It's a question, just like inevitably we have to keep doing it and take risks for it. Here I feel the difference with cryptocurrency, where we can feel financial freedom. I don't think it's worth thinking too much about, the most important thing is how we can be free from finance itself. It will make us more comfortable using finances without any demands.

[Ucy]

Not very sure about the claims but I won't be too surprised if they're true due to how centralized (plus problems associated with centralization) the whole system is.
It's not just the risk you mentioned, there is also risk of debasing people's money via currency inflation, which isn't that possible with True Cryptocurrency because of decentralization/self-custody, transparency, limited-suppy/anti-inflation, and other important features associated with true crypto.

In regards to the last part of your post, it is not just a decentralized digital system but one that allows users to print their money/keys on physical objects they can control, like paper, and it's important that users are able to fully control their money digitally. The physical currency is actually one of the important part of fiat...Hope it's still continued and be useful alternative to digital version when it becomes necessary to use money physically.

[amishmanish]

--snip--
Every ten years, there is a big banking crisis, and after it is solved by regulators and it harms a lot of people, we still continue to pay for banks and their risk-taking with our money. Where we keep our own money and where we can borrow some money when needed doesn't have to be the same place necessarily.

There is no denying the fact that banking crisis or banking failures has become an easy to milk solution for corrupt businessmen, politicians and regulators around the world. The banking crisis like that of 2008 is something that everybody in the world hears. Yet, if someone were to keep a record of the number of times banks writeoff losses around the world, it'd emerge that most of the times, the beneficiaries of this risk-taking are somehow hands-in-glove with policymakers.

Nobody questions this because banks act in an opaque, un-auditable way. They are their own auditors, their own rating agency.

I think crypto or a full-reserve digital banking system would be a revolutionary solution for this, and the popularity of crypto comes from the distrust in the system as a whole.
What do you think about this? Is this traditional banking system necessary for order, or would we all be better off with a decentralised digital system?

The traditional banking system is necessary for the service that it was actually meant to provide. Doing manual due diligence to ensure that worthy enterprises and individuals have access to funds. Under the opaque, centralized systems where you can always bail out your friends, this system has ceased to work. What we need is an overhaul where the banks accept that they are here to serve humanity, not otherwise. That message has to go loud and clear to down-the-line policymakers and politicians. Bitcoin is the tool that people have access to, in order to do something in this direction.