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Small business rescue earned banks $10B in fees (npr.org)
490 points by gnrlbzik 45 days ago | hide | past | web | favorite | 327 comments

Gotta ask whether the banking system makes sense in its current form.

- Part of it is actually a utility. Payments, sending money from one place to another, making sure there's an account at the other end of that number. Everyone needs this, yet being a huge international network there isn't a whole lot that one bank offers that another cannot.

- Part of it is deciding who to lend money to. Makes sense for the bank to decide this with its own money.

- Part of it is regulatory. We don't want money laundering. Have to ask whether this really ought to be up to law enforcement to do, or as it is now a massive burden on the banks, which also have bad incentives.

What if we had the central bank give everyone an account that was interoperable with the rest of the banking system? Then if you want to hand out money, you just do it. If you want to borrow money, find a lender.

You outline the problem very well. The banking sector has an ENORMOUS amount of power over the economy/society in a way that no other industry does because it literally has the ability to create money out of thin air (by loaning it into existence). The banking industry is the arbiter and credit in our society and decides where money get allocated.

This would be fine if it were their own money, but it's not - it's our bank accounts (ie. fractional reserve banking). Unfortunately individuals can't opt out of this because unlike private banks, individuals aren't allowed to open a bank account directly with the government (though these replies show that this is possible in countries like France).

The finance industry does not generate real wealth, it is a wealth extracting industry that profits off the spread between the interest rate decided by the central bank and the interest rates and fees it charges consumers. Banks do not create goods or services, they just decide who gets the money to do so, with money that's not theirs. 80% of bank credit goes to mortgage loans (driving up housing prices and saddling homeowners in debt). Banks have gone from 2% of the U.S. economy in the 1950s to 8% by 2008, and 1.5% of the British economy in 1978 to 15% by 2008.

The first step to fixing this is to give citizens the ability to opt out of private banks and bank directly with the central bank. Private banks should not be the only ones with this privilege.

Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow and earn more in a few years, that's much more valuable than spending 20yrs at McDonald's earning nothing and saving very slowly to pay for your degree upfront as you would have to otherwise. Ditto mortgages. Ditto getting a car or starting a business or basically anything finance permits.

The great recession after 2008 and the great depression both show what happens when finance stops working. The rest of the economy collapses without it. You can all the way back to medieval Kings to see how important it is.

I don't know where people get this idea finance is not "real". If it wasn't useful, people wouldn't be paying for the services it provides, they're all optional.

As the other commenter mentioned, most student loans are guaranteed by the federal government, meaning that the bank is compensated without taking any risk. Student loans in particular are insidious because non-payment can result in one's wages and social security being garned, and it's one of the few loans that doesn't go away in bankruptcy.

Regarding mortgages, auto loans, business loans, the key point is that the money is created out of thin air. 80% of bank credit goes to mortgages, which ultimately drives up prices and fuels housing bubbles.

The Great Recession and Great Depression were caused by the finance sector. The Great Recession was the result of banks fueling a housing bubble by loosening lending standards, driven by the peddling of risky financial securities like CDOs, and leveraged to the tilt by derivatives like credit default swaps. When it all collapsed, they had to be bailed out (while Main St never got one). The Great Depression was preceded by a stock market bubble fueled by speculators trading on margin.

The banking industry does not create wealth. It is a middleman with the monopoly privilege of creating money out of thin air in exchange for dishing out collateral-backed loans of this funny money, and has 1. too much power, and is 2. overcompensated for it's "work" 3. in the long-term will reduce our competitiveness and lead to our relative demise (eg. look at General Electric).

You're failing to envision an alternative where credit is more democratically allocated, where finance isn't so overcompensated and such a brain drain attracting our brightest minds, and where the government can offer $350b in small business loans during a crisis without some middlemen taking a ludicrous 3% fee for shuffling some papers.

> Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow

The vast majority of student loans are guaranteed by the federal government. The banks take zero risk on these loans and still charge higher rates than home mortgages. Something seems broken there.

> The vast majority of student loans are guaranteed by the federal government. The banks take zero risk on these loans

Do you have a source for this? I can't confirm it. As an example, this description implies that the guarantee is for 97% of outstanding principal: https://www.nolo.com/legal-encyclopedia/what-is-federally-gu...

Assuming something close to that, the bank is out 3% of the principal, plus any accumulated interest-- which I would guess is usually substantial, because payments are typically deferred while the student is in school, but the bank's been paying the fed interest during that time period.

So I don't have all the numbers, but on the face of it, it doesn't seem totally ridiculous that a secured loan like a mortgage would fetch a better rate than student loans that aren't fully guaranteed.

That doesn't change the fact the loans are useful. In fact it re-enforces it. Finance is so important the federal government underwrites it at huge cost. But it's also not useful or productive apparently!?

Nobody you've responded to said that though.

They explicitly said that if you wanted to get a loan, private Banks should be there to enable you.

The only thing that they wanted was a public bank, so you're not forced to support them if all you need is an online account for transfers.

Sorry, I'm not sure what you mean?

My point here is that finance is useful.

The view that institutions make too big of a profit off too little risk isn't really relevant to that. Cars are useful no matter what profit Ford makes by making them.

Maybe we need to examine the market to make sure its working? Maybe they're duping the government? Maybe they have some hidden reason to justify those rates. I don't know. But the underlying product is useful wither way. I don't object to any of that. But none of it changes the need for credit.

The original comment I replied to is very clear: finance is not useful, it's a wealth extraction process Etc.

Am I missing your point?

I think you're misunderstanding the original point then

It definitely is a wealth extraction industry. This however doesn't mean that it shouldn't exist.

even in the best case scenario of the bank financing someone who starts producing products which he sells.. the banks job will only be to extract as much money they can get from this person.

As such, they're not producers.. they live off of them.

Nonetheless, there'd be less producers without the banks (at least short term), so they're also enablers. This makes them valuable. But still, they earn their money by extracting the value of someone else's product.

Which is fine if everybody is a willing participant...

Not for the past 10 years, when govt-guaranteed loans were discontinued. As far as student loans in general, let's see -- no collateral, no down payment, no proof of income. A bit riskier than a mortgage, I'd say.

You are basically arguing that the burglar that holds a gun to your head and threatens to pull the trigger if you stop giving him food is 'essential' in your survival so you can not do without him.

What kind of burglar or gunman writes you a check for $300,000, maybe more?

The one that holds many guns to many heads, and has obtained the monopoly on writing pieces of paper.

Umm, what?

Money is loaned into existence by private banks. See my parent comment in this thread.

Thanks for this comment, I felt like I was the only one who felt this way. I had no idea so many crazies were on Hacker News...

Counter point: access to cheap finance pushes up people's purchasing power, driving up the prices of things which can be financed (homes and education being the big ones). I think even before the crash we hit limits on house prices because the bank simply can't increase the loan term beyond 40 years.

> Finance is a very important industry that adds a lot of value.

perhaps, but

> The great recession after 2008 and the great depression both show what happens when finance stops working.

shows the problem with your comment. The "recession after 2008" is not the problem, the previous 30 years of finance capitalism and deregulation (starting with the mortgage interest deduction and securitization in the late 70s) is.

Justifying our horrendously corrupt system this way -- by pointing to the basic utility in banking, lending and financial instruments -- is like saying McDonalds is great because food is good.

> If it wasn't useful, people wouldn't be paying for the services it provides, they're all optional.

Honestly, in my opinion this could not be a more misinformed take on the reality of banking. Today there exist no alternatives to commercial money (private bank debt), because our governments' demand taxes in it.

Finance and banking are also different, yet you seem to use the words interchangeably.

Banking = creation of credit.

Finance (today) is about creating overly complex financial products to take part in the game of high volume automated trading, such as with the use of BlackRock's Aladdin - where the same financial products are sold and resold hundreds of times in an hour. Pure speculation/extraction/Rentierism.

As the comment you replied to wrote:

> The first step to fixing this is to give citizens the ability to opt out of private banks and bank directly with the central bank. Private banks should not be the only ones with this privilege.

"The problem is largely in the system of exchange we call “money,” and in the banks that store and distribute it. Rather than allowing the free exchange of labor and materials for production, our system of banking and credit has acted as a tourniquet on production and a parasite draining resources away.

Genuine economic freedom requires that credit flow freely for productive use. But today, a handful of giant banks diverts that flow into an exponentially-growing self-feeding pool of digital profits for themselves. In the wake of the 2008 financial crisis, much of the global economy has been battling economic downturn, with rampant unemployment, government funding problems, and harsh austerity measures imposed on the people. Meanwhile, the banks that caused this devastation have been bailed out at government expense and continue to thrive at the public trough. All this has caused irate citizens to rise up against the banks, particularly the large international banks. But for better or worse, we cannot do without the functions they perform; and one of these is the creation of “money” in the form of credit when banks make loans.

This advance of bank credit has taken the form of “fractional reserve” lending, which has been heavily criticized. Yet historically, it is this sort of credit created out of nothing on the books of banks that has allowed the wheels of industry to turn. Employers need credit at each stage of production before they have finished products that can be sold on the market, and banks need to be able to create credit as needed to respond to this demand. Without the advance of credit, there will be no products or services to sell; and without products to sell, workers and suppliers cannot get paid.

If banks have an unfair edge in this game, it is because they have managed to get private control of the credit spigots. They use this control not to serve business, industry, and society’s needs but for their private advantage. They can turn credit on and off at will, direct it to their cronies, or use it for their own speculative ventures; and they collect the interest as middlemen. This is not just a modest service fee. Interest has been calculated to compose a third of everything we buy."[1]

The strongest alternative I am seeing emerge at this point is a new distributed peer to peer cryptographically secured accounting framework/pattern called Holochain. It allows us to rapidly prototype, and start using, new types of mutually sovereign asset backed Mutual Credit 'currencies' [2] (wealth-acknowledgement systems), based on productive capacity and measuring this wealth in new ways that isn't possible to integrate with today's money system. This includes the use of reputation currencies (think FairTrade labels, Organic veggie labels etc.). Building on this are projects like http://valueflo.ws.

[1] https://ellenbrown.com/what-are-public-banks-and-how-do-they...

[2] https://medium.com/holochain/beyond-blockchain-simple-scalab...

You haven't answered the question though: if finance isn't useful, why do people keep using it and paying for it?

You for instance (forgive me getting personal) don't have to engage in high volume trading products using Blackrock Aladdin. You can just get a job, get paid, and spend what you earn.

I just re-edited the above comment - does this new edit answer the question you ask?

> You for instance (forgive me getting personal) don't have to engage in high volume trading products using Blackrock Aladdin. You can just get a job, get paid, and spend what you earn.

The problem is that because of the monopoly on today's money, I am literally unable to not take part in society (in the way you describe) without at some point being negatively affected by the slippery things Wall Street does. An example is the recent US government bailouts during COVID-19, which means we are basically paying to clean up corporate fuck-ups caused by the effects of the extremely risky and parasitic ‘financial products’ sold by these big financial institutions.

Leilani Farha, a Canadian human rights lawyer working as the UN's special rapporteur on adequate housing, provides an inside look into one of these dark patterns in the 2019 documentary 'Push'[1]. It focuses on the financialization of housing and in it Blackstone's blueprints are laid out in full. They've now started a new fund to buy more 'distressed real estate' in Europe [2], repeating the same heist they pulled off during the '08 crash. It comes down to buying up housing and becoming landlords en-masse for society's most vulnerable, extracting rents from them, turning neighborhoods (groups of homes) into financial instruments/products, and selling a stake in such a financial product as just another commodity on the market. Yet these are people's lives we're talking about - and they are being systematically destroyed in the pursuit of profit. Profits which are then used to pay for huge corporate bonuses.

In my eyes, the real parasites of today's society are the propertied classes. Not the Precariat class [3], who faces ever-more unstable labor contracts and precarious working conditions, in the global North as well as the South.

The proprietary protocols of the money system constrain and shape all my actions in the world. Unless I live with an indigenous tribe who live in a gift economy, I cannot escape the rules and constraints imposed by the rules of today’s money. This means I am at the mercy of the Rentier capitalist class, which is growing in power every day.

To be honest, we'd have to go deeper and examine Capitalism's move into digital property, and the government granting state backed monopolies - and thus violence backed, through the criminal justice system - in the form of 'intellectual property', which is what I believe is causing a lot of issues in a world:

"…today, a tiny minority of people and corporate interests across the world are accumulating vast wealth and power from rental income, not only from housing and land but from a range of other assets, natural and created. 'Rentiers’ of all kinds are in unparalleled ascendancy and the neo-liberal state is only too keen to oblige their greed.

Rentiers derive income from ownership, possession or control of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, mineral exploitation or financial investments, but other sources have grown too. They include the income lenders gain from debt interest; income from ownership of ‘intellectual property’ (such as patents, copyright, brands and trademarks); capital gains on investments; ‘above normal’ company profits (when a firm has a dominant market position that allows it to charge high prices or dictate terms); income from government subsidies; and income of financial and other intermediaries derived from third-party transactions." [4]

I want us to move to what is commonly referred to as 'Commons based peer production' (Yochai Benckler) - in scholarly circles it would be called ‘Open Access development’. This is literally about connecting the whole world to a hyper-connected network of open source repositories [Ceptr.org], in effect moving us from Platform Capitalism to Protocol/Open Cooperativism. I believe this can start by first evolving or reinventing our wealth acknowledgement systems.

When we also start using Cooperative Open Value Networks instead of enclosed firm-based/Corporate Enterprise Resource Planning systems, we can have transparent supply chains that reveal to us all of the complex information and measurements that are important and which respect humans and planet (say the regenerative capacity of sustainable timber forest, or the productive capacity of a farm during one season).

What happens today is that we reduce everything to one number, it's $dollar value. By doing that we lose a lot of important and vital information about the complex relationships between people, places and resources. Those relationships are obscured. Today's system creates an impoverished one-dimensional view of the physical world where we lose depth by oversimplying things without respecting their complexity and intricacy. Basically the question I am asking is this: how do we fully exploitat the near-zero marginal cost of digital technologies in meeting the promise of a more empowered, less hierarchical, internet?

[1] https://vimeo.com/ondemand/pushthefilm, or available to watch for free with a VPN at https://www.tvo.org/video/documentaries/push-feature-version

[2] https://twitter.com/Noordam/status/1248313189332406273, more info here: https://theconversation.com/wall-street-landlords-are-chasin...

[3] https://progressiveeconomyforum.com/blog/rentier-capitalism-...

[4] https://www.resilience.org/stories/2017-08-03/book-day-corru...


Edit: the way you say I could 'just get a job and get paid', shows me that you might not see that money is merely a human creation, and something without inherent worth. It then stops you from knowing about the possibility for locally-stewarded mutual credit community currencies, together with Commons based peer production. This view however is something I am seeing surprisingly often. When I started learning about the money system, it was all a bit of a mindfuck to me. I found this blog post to be an exciting read and it helped me a lot:


This and the parent comment seem like pretty strong arguments. If the main differentiator is supposed to be whom banks decide to lend to, this doesn't seem to be working. They are extremely risk-averse about innovating lending or using criteria beyond credit score (to preempt accusations of discrimination, I was told, which is ironic since credit score is a hugely discriminatory system).

Anyway, I think I like the idea of a government-centralized deposit and monetary transfer system. This is the direct electronic equivalent of cash. A single national interest rate seems reasonable since current saving account rates are essentially set by the reserve rate today anyway. But I feel there must be a better privatized lending system than the current one though.

There are many calls for public banking by people such as Ellen Brown [1], as well organizations such as the MetaCurrency Project [2] and Positive Money [3].

[1] https://ellenbrown.com/what-are-public-banks-and-how-do-they...

[2] http://eric.harris-braun.com/blog/2007/05/14/id-53

[3] https://www.youtube.com/watch?v=ZzCegQVljdY

What is actually ironic here is commenters on a technology-driven site dismissing the OG of algorithms used to optimize a real-world, complex business problem -- the FICO credit score. Long before PageRank or Netflix's $1 million prize or any HFT firms, Fair, Isaac & Co. designed a revolutionary, data-driven product that massively reduced banks' lending risk while saving them enormous amounts of time. It also removed bankers' personal biases out of the equation. While it may not be perfect, nobody has come up with a better system and adoption is near-universal, with many more applications than it was originally designed for.

> The banking industry is the arbiter and credit in our society and decides where money get allocated.

Thanks for your comment. In my experience this is the most misunderstood aspect about money. Your comment explained it really well. I wish this was more widely understood and talked about.

I do not think the original commenter understands the monopolistic as well as parasitical nature of today's money, as they write:

> - Part of it is deciding who to lend money to. Makes sense for the bank to decide this with its own money.

...which is wrong. Banks do not have their 'own money'. They create money out of nothing. They get a license to create debt out of nothing (fiat). Many times today they do not even have to have the fractional reserves for any of it.

If anyone has any doubts please check out Anthropologist David Graeber's book 'Debt: The First 5,000 Years' as well as his explanation of the money system in this article:

"In other words, everything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What's more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity.

What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there's no question of public spending "crowding out" private investment. It's exactly the opposite."[1]

[1] https://www.theguardian.com/commentisfree/2014/mar/18/truth-...

There are tons of different banks and credit unions as perfectly good options. There is a healthy and competitive market. The current system is a great way to create jobs and keep product offerings competitive, which means efficiency for the consumer. Banking is an extremely important industry to society, so it makes sense that they would have a lot of power, and a lot of oversight.

There have been suggestions over the years for the post office to offer banking services. They have branches literally everywhere, they're independent yet still a government agency, and have no profit motive.

Are you talking about the US post office?

The post office in France already offer banking. It's mandated by law as a public service and they can't reject customers. It doesn't offer the more complex products or investments though, it ain't their purpose.

Not sure about the UK post office. Seem to offer a lot of banking services and cards, but it says it doesn't do current accounts anymore.

The UK Post Office did offer banking. Not sure if it survived Thatcher..

They offer some things now (deposits, travel cards, etc), but I am not sure they offer actual accounts anymore.

According to their website, they still offer almost everything a traditional bank does. Including personal loans, and mortgages [1].

1: https://www.postoffice.co.uk/money

A lot of that is just rebranding of services offered by one of the normal, traditional banks though.

> they can't reject customers

This would be a huge thing in the US, where poor people cannot get bank accounts, and end up needing to use predatory paycheck cashing providers who take huge fees instead.

Yes, the article was about the US.

There's a postal service bank in Israel as well. Lots of people use it, it's a fine service. They also offer fantastic foreign exchange rates, pretty much the best I think.

The USPS used to run limited banking services[1] in the 20th century. It was largely obsolete by the 1960s (according to the Wiki article).

It's also important to note that the USPS is required to be self-sufficient in its purse strings, but is heavily restricted in what markets it can/can't be in by Congress. I think the "privatize everything" crowd of legislators/lobbyists see the USPS in banking as an existential threat to private banks profit margins and it won't happen without a political black swan (maybe not even in the current black swan environment).

[1] https://en.wikipedia.org/wiki/United_States_Postal_Savings_S...

We have this in Ireland!


I believe Japan Post offers(ed?) this service. They had the best FX exchange rates, as well.

In Ukraine we used mail mans to deliver pensions, that was horrible for them. Almost every year they were assaults in which they died. They represent a simple target as they don't have means to protect themselves.

Cash delivery?

Yes, direct to the person at the post office and between the cities.

This was one of Andrew Yang's policy proposals in his presidential bid (and it was one of my favorites). Looks like a bunch of other countries already do it as well.

I could not imagine the amount of financial, operational, technological and regulatory infrastructure that would need to be ported over, however.

We have the US Digital Service [1] and 18F [2]. We (US citizens) should demand Congress to provide them the authority to deliver the modernization required to implement such infrastructure. Use Login.gov [3] to provide for digital identity management of these accounts. Perform in person KYC using USPS and DHS/CBP branches, and identity proofing online using traditional service providers (IRS already does this for your IRS account, SSA might, I haven't checked recently).

The path to success is straightforward.

EDIT: So I did some digging, and it appears that the US Treasury has partnered with Comerica Bank in Texas to provide this sort of service to Social Security benefit recipients [4] (because the Treasury requires electronic payment of social security benefits, and you can't leave seniors unbanked). The challenge is going to be to find Congressional reps supportive of bringing this functionality in house, which isn't unreasonable IMHO, to provide this as a utility to all US citizens. I have already fired off a FOIA request to get details on the contract between Treasury and Comerica.

[1] https://www.usds.gov/ | [2] https://18f.gsa.gov/ | [3] https://login.gov/ [4] https://www.usdirectexpress.com/

Would it be feasable for the government to acquire a mobile first bank and graft it onto the post office? Either chime, bankmobile, moven, or simple.

Is it a space the government wants to compete against Apple and Google? If every mobile phone in the country comes with a free integrated banking service, how do you compete? Would the government better serve by using its resources to regulate interoperability and compatibility, and rule following, than by competing?

I totally get why a free post office bank would do great things to serve the underbanked. But if the government is going to get into banking, id like to see it go a step further, more like Singapore, and be some kind of new HSA type account offering, a forced savings account that can be used to pay rent and more.

It's not politically feasible. The Republicans have been trying to kill off the USPS for decades now, and would torpedo any effort to expand it's scope in a way that that the USPS might be competent at.

Right, you need more reps who support protecting and expanding public goods like the USPS, regardless of political affiliation.

It's not that hard. Just assume control of some bankrupt bank or even contract out the backend, and put terminals in post offices. When Bank of America merged with a few others, they actually operated several of the old banks at once for awhile.

Medicare uses the latter model for claims processing -- big insurance companies bid on processing, subrogation, etc.

I think the problem really isn't as complicated as that list might make it seem. In my home country (EU), local shops offer basic banking services (withdraw, deposit money) in rural areas where banks have no incentive to have a branch. They're already integrated into the wider cash flow system, money is moved to and from the locations securely regularly, etc. Postal offices would tick all those boxes as well with the additional contextual benefit of being government-run.

There are plenty of comments in this very thread that give examples of many other countries already doing it, including countries that have way lower GDP/Person than the US.

Are you saying the US is incapable of doing what is already being done in many other countries?

> Are you saying the US is incapable of doing what is already being done in many other countries?

"Incapable" assumes lots of things, but practically speaking the number of things that we (the USA) "are capable of doing" is shrinking and using GDP/Person is an interesting way to illustrate the point.

We are overpaying for services that other countries have managed to solve for reasonable costs. University tuition, healthcare, building infrastructure are all ridiculously expensive in the USA, so our higher GDP/Person is largely wasted compared to most other OECD countries. Our government and the crooked ethical guidelines of our companies/organizations are why this overpricing started and continues to exist.

For those tasks which require regulatory/legal changes, the USA is swimming in peanut butter. What we "are capable of doing" largely has to do with our Legislature+Executive branches ability to find ways to make productive changes (rare) without sabotaging those same efforts (even rarer). But half of those people are rowing in one direction (team red) and the other half in another (team blue). The USA's primary policy tool is "make the most visible spectacle of brinksmanship" and has been for 10+ years.

The people/companies in the USA are capable of feature parity with just about any other country's people/companies, but that assumes that our government either doesn't get in the way or their government doesn't assist them.

Not commercial banks.

Above examples are just passbook (personal) savings and misc services. Super simple.

Though I'd be open minded towards some overlap with credit unions.

Germany did that (post bank) didn't want so well...

What went wrong?

Nothing. It got privatized and is currently owned by Deutsche Bank.

It's not nothing if it was privatized. Either something went wrong to drive privatization, or nothing was going wrong to begin with and then privatization was what went wrong.

Postbank got privatized, because in the 90s everything got privatized. It is used today by Deutsche Bank to target its private customers. It is not one of the fintechs but generally able to compete in that market.

Something must have gone wrong. I know for fact that in Poland you can bank at post office at least since 90s. Its still common think for seniors to have no bank account because there is no need to. They typically get pension in form of a government check that they cash at "Poczta Polska" and then use cash to shop. Post office also pays all the bills, utilities etc, so long as you know corporation/receipient bank number.

Post Bank formed from Deutsche Bank. Which was made infamous for loaning Donald Trump loads of money on highly questionable terms.

No, Post Bank was sold to Deutsche Bank. It was created by the Deutsche Post, who then spun it off, funneled a lot of their branches into it (so you have bank offices that also rent out a desk to the Post) and sold it to Deutsche Bank.

I looked at the wikipedia post for Post Bank and it is really confusing. So on re-reading I see:

1990 Postbank is created from Duetsche Post breaking up.

1999 Deutsche Post takes back Postbank.

2004 Deutsche Bank sells it's transaction bank to Postbank.

2012 Deutsche Bank acquires Postbank.

I think the name Deutsche Bank makes it even more confusing. As opposed to Deutsche Telekom (T-Mobile), Deutsche Bahn (DB/Schenker/Arriva) and Deutsche Post (DHL), Deutsche Bank never was state-owned. It was just named that way, because it was founded as a project (and arguably still is) so Germany would play a role on the world financial stage.

Policy should have sent the money directly to companies from the SBA/IRS, customers then would choose the banks to service that guaranteed government grant/loan essentially. Much like the FAFSA system for student loans, you get your amount, then a servicer handles the actual loan but there is literally no risk to them as it is guaranteed.

Why we sent guaranteed money to be held up in banks and did information and credit checks, on already known information from the IRS, well we know why, to pilfer it.

Had they ran it a better way, using the actual market, directly to businesses/individuals, that is lots of money out there for banks to go get and the market knows it is out there as well. Markets like knowing hundreds of billions and trillions are out there to go get. Make them earn the fees if they must.

Instead, it was a direct transfer from the Fed and treasury to QE that was pilfered by the usual suspects: hedge funds, market makers, foreign funds, oligarchs, wealth/value extraction ops, naked short selling, short and distort and more. The SBA money was pilfered by banks and large companies. The 'stimulus' for the economy, routed around the entire actual economy, never reaching individuals or true small business.

"The 'stimulus' for the economy, routed around the entire actual economy, never reaching individuals or true small business."

How can this be true if innumerable number of individuals received $1200 checks and many small businesses also received varying amounts in the four and five digits?

There are still millions of eligible people who cannot use the get my payment tool to get their status on the stimulus payment. Companies like Ruths Chris Steakhouse who spent millions in stock buybacks and have millions in reserve are receiving millions when they don’t need it. Shake Shack got 10 mill. and even though they returned it due to public backlash, now it can’t be loaned out again until the next PPP-like loan funding is approved. PPP is depleted giving out to large, publicly traded companies...not small businesses.

You’re describing “narrow” banks.

While they make sense for consumers, our banking system is tightly coupled with another: mortgages. The money that you deposit is loaned out. Could the federal government do the too? Sure, and the government (talking about the US here) does end up owning a large chunk of mortgages via Fannie Mae and Freddie Mac.

But the expertise and the manpower around vetting the mortgages is a _lot_ of work. Work that the federal government couldn’t decide to take on tomorrow, might not even want to, and if they announced that they were going to try would shake the core of the stock markets. (And yes, stock markets matter for more than just making rich people richer.)

On the other hand you suggest de-coupling: “Find a lender.” If you take away the deposits, who has that much money to lend out without being dangerously leveraged?

If you were to design an economic system, this might be the one you’d design. Given the one we have, narrow banks are difficult to allow without some significant “turbulence”.

It is rare today that banks hold mortgages and use depositor funds to fund them. Most (government backed, such as FHA, Fannie, and Freddie) mortgages are securitized and sold on the secondary market to bondholders (there are caveats for small banks, credit unions, and non-qm lenders).

A narrow bank does not require lending to service deposit accounts. It doesn't even need to pay interest to account holders. It simply needs to accept, store, and distribute fiat on the behalf of its customers via ACH, debit, and credit processing networks. Think prepaid card with no fees and no overdraft capability.

The Federal Reserve is culpable in that it will not approve banking licenses for narrow banks [1], as it challenges the business model of existing entrenched banking organizations. Can you build a narrow bank without getting the Fed to sign off? That is a conversation I would be interested in having over a cup of coffee.

[1] https://www.spglobal.com/marketintelligence/en/news-insights...

Really? You mean, even an existing (approved) bank can't just one day decide to stop lending and revert to narrow functions?

They could, but would see a reduction in income by doing so, therefore an unlikely occurrence. I don’t see many banks willingly walk away from low risk income.

Yes, but you were saying that the impediment was a legal one. I'm asking if that's really true, given that a(n approved) bank can just elect not to provide some services. Surely that can't be illegal.

I’m speaking about starting a new bank, and obtaining a bank license to do so.

You were speaking about the general possibility of running narrow banking. Whether it is a new bank or existing bank doesn't matter to that point, so you can't dismiss the possibility of an existing bank doing it and thereby claim it's impossible because a new bank couldn't get a license on that premise.

"Narrow banking is impossible."

'What if you did it this way?'

"I'm not talking about that, I'm talking about the impossible ways."

I apologize if my citation and my explanation were not clear enough to convey the concept in my original comment ("Federal Reserve will not issue banking licenses to allow new banking entrants to operate as narrow banks").

That point was plenty clear, and I was not disputing it, so no need for an apology. The more relevant point here is whether narrow banking is legal at all, and I was trying to bring the discussion over to that point.

If your point was merely to cite some non-blocking barrier to narrow banking, than I don't really see why you brought it up. If you want to apologize, apologize for being technically correct at the expense of providing insight.

> "If you take away the deposits, who has that much money to lend out without being dangerously leveraged?"

mortgages don't have to go through retail banks, and there are plenty of other transaction fees to support banks of all sorts.

in fact, there's no reason we should have allowed the consolidation of banking other than to allow rent-seekers to amalgamate more sources of relatively risk-free cash flows under the control of fewer and greedier hands. we could have maintained lots of small banks that serve the community and region, enriching those communities, rather than a few behemoths that strip-mine them.

a lot of the "work" of mortgages is really mindless paper-shuffling by other rent-seekers taking their little slice of the large transaction price. none of those service providers go away if the government decided to take over (not that i'm advocating such a takeover).

> But the expertise and the manpower around vetting the mortgages is a _lot_ of work.

Not to be snarky, but the Great Recession didn't give me a lot of confidence in the expertise involved in vetting mortgages.

This is correct. I worked in real estate prior to the collapse. By 2006, Bank of America and others had already moved to an entirely automated appraisal process and people were able to get loans in excess of 35% of their monthly income no problem.

Consider that the Information Age has made actual financial work vastly less expensive (computers, spreadsheets, digital communication, etc.) while at the same time the finance sector has grown to be a much higher portion of the economy (in GDP). There could be a plausible explanation, but it certainly seems fishy.

Do you know how many more financial abstractions exist today than 40 years ago? That being said, I fully support moving 90+% of financial activity to smart contracts.

> What if we had the central bank give everyone an account that was interoperable with the rest of the banking system?

Many economists and others have been calling for this [1], and seeing the replies it looks like many countries already implement this.

If this existed, then we wouldn't need to funnel 3% of these emergency loans into the private banking industry, a pretty outrageous loss of money for what amounts to some modest paperwork.

[1] https://www.npr.org/sections/money/2018/07/11/628173553/fed-...

> some modest paperwork.

and which nowdays is probably done by a computer system without any paper being involved

Instead of all the fuckery, imagine if the government just sent everyone a monthly cheque with the only criteria that they are a living breathing adult with a US address.

Universal trickle up.

When you believe that all humans will act in an honest and moral way, this is certainly the solution that appears to work best. Full disclosure: I'm with you, I think this is probably what will need to be seriously considered in the future.

Counter argument: Won't this just encourage fuckery from the citizenry? Won't they just be encouraged to game the system (have more kids, take care of people to intercept their checks, etc)?

Yes of course. No matter what you do some percentage will try to game it, however the simpler the system the less complexity there is to hide in (fewer attack vectors to protect). There are likely a finite, very small, number of ways to game this that we'd need to guard against. Let's start a list, because I really don't think there's that much to worry about!

- More kids? OK that's probably good for an aging society, but do we even dole out money based on dependents? Should the government be in the position of subsidizing people having kids in the first place? Since it's adults who are directly impacted (losing income from a job) that's who we target. We can always address dependents through another program if needed, but that'll require a whole other level of complexity.

- Intercepting cheques? Are we talking about a subset of elderly or disabled who can't cash their own cheques? How do we handle social security cheques today? Maybe we would need more measures to handle this issue due to scale?

- Illegal immigrants? This one is a political quagmire. In my opinion they deserve the same benefits, but that's a very controversial opinion, and not something I'd want bogging down immediate assistance to everyone else. Ideally this is something the entire country would get to vote on, understanding that it will have a huge impact on a lot of industries.


Most theories of the good hold that you are certainly entitled to things just for being born - take your life for instance.

Your alternative conception is far outside the norm.

Fundamentally, your retort to the parent’s (poorly expressed and now dead) reply is sound, though I believe they might have been circling the concept of negative vs. positive rights. It’s an interesting topic and one worthy of debate, though sadly that debate has become fraught with emotion and passion, to the point that it’s on a level with abortion - it just can’t be discussed in most circles.

Maybe, although I believe that it's not too hard to have a basic argument about negative v. positive rights. Some people debate and feel passionately about the things they believe. As long as they're making arguments, I am not sure what the problem is.

I oftentimes find that good debates are more often disrupted by the person who insists on this mythic ideal of "unemotional" & civic & rational debate than the person who feels strongly about the issue.

"Most theories of the good hold that you are certainly entitled to things just for being born - take your life for instance."

Where can more information be found about "theories of the good"? What about this thing we call money - how much are we entitled to and from who?

Can anyone explain what the benefit is of living an existence feeling entitled to something tangible such as money?

Sure, you can examine moral and political philosophy. Nozick has some writing about it, Rawls does, Mill, etc. - it's a whole branch of thought.

The benefit of shaping society in a way that you think is good is that you end up with a better society.

I don't really think you're discussing in good faith, so I'll end it here - but I think this is a very interesting line of discussion.

I'm open to learning about moral and political philosophy. I will check out Nozick, Rawls and Mill - thanks for the pointers.

Meanwhile I am failing to grasp how feeling (worse yet acting) entitled to something (in this case money) from someone else or society at large is beneficial. Anyone I've ever met or interacted with IRL with this disposition is perpetually unfulfilled and extremely ungrateful for very gift of life they have been given.

Have you ever met a successful, happy, healthy and/or otherwise admirable individual who feels or acts entitled?

If we can acknowledge that societie's rewards aren't directly proportional to work ethic (Bezos works hard sure, but 5,000 times harder?), and yet everyone participates in a society that enables these rewards. Think of every civil service, roads, consumers buying your stuff, the fact that brigands aren't simply looting your factories and stores etc. Fortunes are built on the shoulders of everyone who does and has contributed to society.

So if you accept the above statement we can discuss what people are entitled to coming from the same place. If you don't accept the above (many don't, not judging) then we we'll be stuck on that and won't get any further discussing entitlement.

It's not about doling out money to lazy people. That's become a bit of a trope. The American dream is dead. If you are born into poverty then the odds of you getting out of poverty, regardless of how hard you work, is vanishingly low. Sure there are lazy people but I would argue that it's impractical to try and figure out a system that weeds them out at scale, and then you're stuck with half assed policy that does nothing or benefits a bunch of smart greedy pricks instead.

Right now as things are Banks are just leeches offering minimal value to the world yet receiving a lot of income.

I'm pretty sure banks are offering lots of value. What would you do without an electronic bank account? Send cash via mail? The problem is that they are abusing their monopoly position and lack accountability which results in a moral hazard. You didn't mention any of that.

This is a very one-sided and unsupported (I don't see links to articles) argument. You can do better.

> What if we had the central bank give everyone an account

Single point of failure. Single point of power seizure. Single point of abuse for policy/NSA/FBI/DEA/BATF/CIA.

As an alternative: Each bank must speak a common language for transactions as part of their charter, aka "ACH". The task to accomplish what you wish simply becomes "Improve ACH to realtime, rather than batch" and a bunch of our problems go away. Furthermore, give banks more freedom as to how they want to interchange money so competition is created to force fees and middlemen down. The nice thing about this approach is there's a fast default path via ACH, but banks are free to innovate elsewhere, improving services.

It's not a single point of failure, it's giving people the option to not bank through a private bank.

Private banks already get a bank account with the government (the Central Bank), why shouldn't individuals have that same option?

I'm not even sure if central banking will last much longer before collapsing under the seemingly unlimited requests for funding. I notice that people want to pretend like laws of supply and demand don't exist and that everything can be fixed with the money printer. I think this does not bode well for our future in general.

The reason to reject having a central bank having direct tentacles into your life is the same reason you don't have the FBI run your email and wireless phone provider. Once you give them that sort of power, they'll start telling you exactly what you can spend your money on, under the auspices of "stimulating the economy". It's a central planning draconian nightmare.

There is no money printer. Each unit of currency that the central banks flood the market with is backed by an asset of equal value on the balance sheet of the central bank.

You miss the trust part.

I want to transfer big sum of money, essentially my life savings to someone.

Who do I choose for the job:

- local post office

- some crypto mumbo-jumbo that a lot of criminals use

- huge institution with daily income five orders of magnitude more than the sum I am talking about, regulated up to a dollar with 100 years of history of earning international trust

- some other option


The local post office, backed by the USG, with hundreds of thousands of employees and deals in billions of dollars per year? That tiny little enterprise? Is that what you're talking about like it's diminutive?

Money laundering is still pretty easy to do. If you go through the proper channels and know the reporting laws, it's easy to avoid altogether. Although time consuming and you deal with swaths of physical cash, it's not impractical. You could honestly pay high school students like $20 to convert $1000 cash to a money order or something addressed to your company. They "pay" the company for it's "services" and you wash it through loans and other stuff.

Now the trick is to manage it in a way that a prosecutor couldn't convince a jury of structuring. Have an accountant fabricate records and mix it with legitimate purchases and expenses. It's essentially a front...but what corporation isnt one?

> Part of it is regulatory. We don't want money laundering. Have to ask whether this really ought to be up to law enforcement to do, or as it is now a massive burden on the banks, which also have bad incentives.

End drug prohibition.

What you described is 'retail current accounts' which make up a tiny portion of what 'banking' is.

Also, the Fed doesn't 'give out money' really.

If the Government wants to 'give out money' it can write a cheque - or - use some kind of IBN/SWIFT style coding to direct deposit.

The government needs: better identity management so you can 'login' an 'prove' who you are, where you live. And banks need better routing/transfer.

FYI there is 'paperwork' and 'process' involved in doling out money, it might have been better not to use the banks.

> What if we had the central bank give everyone an account that was interoperable with the rest of the banking system? Then if you want to hand out money, you just do it. If you want to borrow money, find a lender.

Except nobody knows if PPP money is a loan or a handout yet. The criteria for determining that is in the future, and central banks are as equally incapable of time travel as anyone else. That's why they're administered as forgivable loans. All PPP money is a loan right now.

> We don't want money laundering

Can you explain this? It's never made any sense, at all.

1. If you earn excess unreported income, eventually the IRS will figure it out and come get their cut.

2. If you earn it through criminal means, you're already committing a crime for which, if caught, you will be punished.

Why is the act of obfuscating the source of income a crime? Who gets harmed by this, that isn't already harmed by either the potential crime committed or taxes evaded?

If you make money laundering easy it becomes much easier to commit crimes and keep your gains, while the volume of the payoff gets much higher.

If drug dealers in the 80s could have started hedge funds (or even deposit funds legally) with their shoeboxes of cash, it would’ve been an even crazier ball game.

also, it seems to me that current money laundering didn't really exist before the early 70s

a series of legislations right around the time of declaration of war against drugs (91st USA congress) pretty much made 'money laundering' a thing

prior to that, during the prohibition era it wasn't called money laundering yet it was simple tax evasion.

It's not a crime if the source is legitimate, but if you ask me to hold on to a bag of cash which your friend will retrieve tomorrow, then it's reasonable for me to ask if the cash is legit. Otherwise, I may be harmed by being part of a crime.

It's no different for a financial institution holding onto a bag of cash.

regarding 1), the point of money laundering is that you can report that income to the IRS without clearly implicating yourself in criminal activity. laundering your money and then not reporting it defeats the purpose.

there's nothing inherently wrong with obfuscating a source of income, although it's hard to do this without committing some sort of fraud along the way. it's a (somewhat distasteful, imo) administrative convenience. people who run criminal enterprises have a variety of methods for distancing themselves from the actual crimes they are making money from. it turns out to be a lot easier to catch them doing funny stuff with money than it is to pin any of the original crimes on them.

> What if we had the central bank give everyone an account that was interoperable with the rest of the banking system?

Because we don't trust the central bank enough (edit: to not arbitrarily give their friends money directly - still happens though). And they don't want to be politicized by giving up autonomy. So the current compromise is that by law they can't lend directly except by Congressional statute, such as the CARES Act stipulates.

> Because we don't trust the central bank enough

What does this actually mean? "Trust" isn't a one-dimensional version. What don't you trust them to do or not do? Do people really "trust" Wells Fargo, opener of fraudulent accounts, more than the Federal Reserve? Why?

To not arbitrarily give certain citizens money. At least now they have to make a private placement offer and jump through a few hoops to get the right bond rating

That's the great paranoia about the Federal Reserve? Seems .. anticlimactic.

Besides, the agency responsible for shipping huge amounts of cash to random people in total secrecy is the DOD. All those pallets of dollars that went missing in Iraq.

People always seem to miss this key point:

The central bank is not a regular bank, it’s a “reserve” bank. Very different function.

My understanding was that GP was suggesting a change in the function of the central bank. Did you have a different interpretation?

I missed that interpretation, but upon rereading the post, it sounds like you are correct.

That being said, the central bank (at least in the US) is structured much more like a think tank and policy center than anything close to a customer-facing organization.

Personally, I'm not a fan of that idea, but I completely agree that banking policies/regulations need to be overhauled.

> structured much more like a think tank and policy center

Uh, I agree that the central bank isn't consumer facing - but this is a bit of a stretch. Think tanks don't loan trillions of dollars.

Not much of a stretch, though. From [0]:

The Federal Reserve

1 conducts the nation's monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;

2 promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;

3 promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;

4 fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and

5 promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.

Other than #4 (which as you say is clearly is nothing like a think tank), all the rest have significant policy or regulatory actions.

[0] - https://www.federalreserve.gov/aboutthefed/structure-federal...


Today's banking, tomorrow is Telcos, the day after...

What if the problem is the lobbying?

I don't think it's a good idea, the government sector is usually less efficient than private sector. It would only make sense if the banking market was not competitive but it's not the case.

> the government sector is usually less efficient than private sector

Statements like this require proof.

I don't have a proof, it's a belief based on anecdotal evidence and just thinking about it.

Then use a qualifying statement such as "It seems to me ___" or "I believe ___" Don't make an opinionated statement saying "is" as though it's statement of fact without being able to prove it.

That is implicit, there's almost nothing I'm completely sure of. I would add that qualification if I had low confidence about the claim.

and based on medicare and the post office as reference points you'd be very wrong.

Maybe it doesn't apply to healthcare. I said "usually".

I’m guessing you’ll end up re-inventing the banking system if you follow this down enough of the complex rabbit holes required here.

What do you think a lender is? Why do you think they can lend money?

I agree very much, in any society it is as essential matter as legislation, representation, law enforcement and such. Must be a public service.


More seriously, compare the UK's former state-run consumer bank: https://en.wikipedia.org/wiki/Girobank

> The organisation chalked up notable firsts. It was the first bank designed with computerised operations in mind; the first bank in Europe to adopt OCR (optical character recognition) technology; the first bank to offer interest-bearing current accounts, and the first bank in Europe to offer telephone banking, operating several years prior to the start of Midland Bank's First Direct service. It is widely credited for shaking up the UK banking market, forcing competitors to innovate and respond to the needs of the mass market.

It was literally by the socialist government to give cheap and effective banking to the unbanked working class in the 1960s.

Another issue for the US: the EU has an explicit remit for a single market. The US does not, and in some areas it's much less harmonised. Banking is one of them. The US would benefit from a central organisation coordinating things like Faster Payments. Everybody should have the opportunity to do fast, secure, free interbank payments.

The thing here is the bank isn’t taking any risk here. All the loans are guaranteed by the government. So banks are really just a middle man that is transferring money from the SBA to a small business’s bank account and taking on zero credit risk.

The government has the ability to send funds directly to people obviously...that’s how they are sending the stimulus checks and send tax refunds.

Banks are basically being compensated for doing paperwork.

Not only they are not taking risk, they get to pick who gets the funding so they further optimize their bottom line, by say favoring bigger loans or loans to their most indebted customers. I hope there is a reckoning but I am pretty sure there will be bonuses to the CEO's instead.

Maybe someone can get a class action lawsuit together on this.

How can we say that banks are not taking any risk, but then imagine a class action law suit against them? Wouldn't the possibility of getting deluged with lawsuits count as a risk?

The article mentions that a law firm is currently pursuing this.

well.. we could occupy zuccotti park again, except now it's illegal to have more than 100 people in the same place together.


"the civil liberties lobby"

My understanding is there is actually some risk. If they do the paperwork wrong, or if the regulations change randomly (which they have a bunch of times already), the bank could theoretically be on the hook. Some of this reportedly happened in the last recession/bailout, so the banks are a bit gun shy.

I am not a banker, so this is all second hand information I have read on r/smallbusiness and other forums while trying to figure out my own stuff.

Don't get me wrong, I think they are getting paid a ton, probably too much, but it is not zero risk.

The banks considered that risk and said they wouldn't participate unless it was eliminated.[0] I can't find any follow-up article covering if or how that resolved but I notice most banks seem to have participated in the end.

[0] https://www.reuters.com/article/us-health-coronavirus-stimul...

Sure there’s probably some compliance risk here but that’s why most businesses are only working with existing clients. Very few are approving applications from brand new customers they’ve never had a relationship with.

>>Banks are basically being compensated for doing paperwork.

They're really being compensated for having the network to do what the government wanted to. No one else has the capacity to give money to small (and some large) businesses in a record amount of time.

I'd pay 5% to get the stimulus cash a few days after the bill is passed...and I guess the same for the government /taxpayers. Corona loans that go out in October are no good, so you pay a fee for performance. Call that $10B a Bank Stimulus Act

The IRS has the capability to put money directly into business bank accounts, or require businesses to sign up for EFTPS.

how about handling their applications, eligibility? They don't. It's not like every business for $500K each so let's deposit it

The IRS already has the information that the banks are asking for.

For companies with employees, that is IRS Forms 940 and 941.

For Sole Props that is your IRS Form 1040 and Schedule-C.

The IRS likely has the banking information for your company (or your payroll processor) and if they don't they have your business address, and could cut checks like they do EVERY YEAR.

Claiming that a bank has to be there to process the paperwork is just plain ignorant of the amount of information the IRS already requires from companies on a quarterly and yearly basis.

At the end of each PPP application with your bank, you get the same SBA PPP form to sign as the SBA has publicized on their web page. You then have to sign and pinkie swear that the funds are necessary and going to payroll.

The banks are doing jack shit in terms of useful work except shoveling application's SBA's way, with the SBA being the ultimate approver of the loan anyway! Bank are just in middle and limiting applications to their existing customers for no good reason whatsoever.

Like I said they are being compensated for doing paperwork. But the compensation appears to far exceed the effort required especially if most customers are applying through an existing banking relationship.

Everyone said they weren't taking any risk, but all the money was distributed and now they're getting sued by people who didn't get some.

To be fair that’s a risk created by the financial institutions in the way they chose to implement & process the loans, not a risk inherent in the structure of the Paycheck Protection Program. A bank that processed these loan applications fairly and in the order they were received doesn’t really need to worry. (Whether such a bank exists at all is a different story.)

But even the banks who blatantly processed the applications in an unfair or discriminatory manner probably aren’t losing much sleep. The clients with the resources & connections to make a stink are the clients who got approved. Funny how that works.

I disagree, I think regardless of the implementation, there are so many businesses that didn't get money, that banks are getting sued anyway.

I also agree that a lot of banks probably aren't losing much sleep, but that's different than saying this whole thing is risk free to the banks.

Banks do that for many programs. For many different services, banks function as a less efficient and more expensive bureaucracy than the government itself.

Plus there is a non-trivial amount of pressure to keep government out of things that the private sector could do, both politically speaking and from the private sectors that stand to profit.

This was done for a logistical reason so companies could get money in days/weeks not months. Stimulus checks just go blindly out. Tax refunds have a system that has been in place for years. Making random payments to random people/companies has no parallel. The government doesn't have staff to look at payroll receipts, etc. to determine how much a company should get. Banks do this all the time and have the systems to handle it. Also, people already have LOCs and other relationships with their banks. Banks weren't lending because the loans would be risky so the government said will cover any losses up to X and people started getting money that week.

In the future, we'll have better systems for this kind of thing but we don't have them today. The bank plan was the most expedient one.

> The government has the ability to send funds directly to people obviously...that’s how they are sending the stimulus checks and send tax refunds.

Actually a major issue with the stimulus is that the government does not have this ability, which is why it will takes months for some people to get their checks. Many people don't have to file income taxes, so the government doesn't have their info.

yes they do, they do it every year via tax returns.

the problems relate to unemployement systems (completely different system) or our administration holding things up (trump demanding his name be on the checks)

The bank is taking all of the AML / KYC risk for all of these loans by law, which is costlier / riskier than you’d expect. Further, they’re taking a giant risk that they did paperwork in line with a massive government program that was rolled out extremely quickly without guidance or details.

$10B seems like a pretty low number for this risk plus the cost of servicing the loans over time.

That’s why most banks are only approving loans for their existing customers. All of that onboarding work is already done in that case.

I believe it is not taking any credit risk but it is still taking a fraud risk and I assume still needs to meet its KYC obligations. Plus the documentation and operational needs.

Anyone who works in the financial industry knows that client onboarding is painful.

That’s why most banks are only approving applications from existing business customers.

Paperwork AND doing due diligence on the companies more effectively than the government can right now.

The point is the amount they are earning is overly generous for the work completed.

Most banks are only working with existing customers, so the DD is 99% complete. Few are reviewing applications from brand new clients.

Not to mention that the banks are biased and giving no risk handouts to their most valuable clients (those at greatest risk of defaulting on obligations to the bank).

Even then, SME clients don't do operations (like loan applications) with their banks every month, so that doesn't mean the DD is up to date (bank regulations change almost on a weekly basis).

Yes, but the point is DD was done (last year or today). Effectively the government is paying the banks for the work they've done creating a relationship with the clients, which includes DD.

"existing customer" due diligence seems like fair profit...

What incentive does bank have to actually do due diligence, when the loans are all guaranteed by government?

The loans are guaranteed but you can still pay $ sanctions for not doing the work right.

From Matt Levine:

> Big banks that paid billions of dollars in sanctions after the 2008 financial crisis for flaws or omissions in loan applications -- in that case, mortgages -- assumed paperwork submitted to the SBA would need to meet high standards, or they would risk getting in trouble again. Wells Fargo has been under particular pressure to show that it overhauled its internal controls.

Now that wasn't in the end the case as:

> Some were floored when the SBA posted a notice on its website on Tuesday, confirming that’s necessary but saying that “lenders who did not understand that these steps are required” didn’t need to withdraw applications already submitted. That essentially gave an edge to lenders that had skipped that time-intensive step to get their customers’ applications in first.

But that was (some of the) banks' view.

Because they are giving the corporate handouts to customers who are at the greatest risk of defaulting on loans to their own bank - that's their incentive.

Again, since the loans are guaranteed by the government, what risk are the banks taking, exactly?

I don't follow, this seems like even less of an incentive to do due diligence.

Robosigning and NINA loans of the past lead me to be skeptical.

Banks paid sanctions for failing to do due diligence on loan applications, that's what the banks want to avoid this time round.

Wouldn't their value add here be that they can quickly do due diligence and expedite these loans given their expertise in the field?

Seems you're extolling their ability to perform quickly, while also excusing away their inability to perform quickly.

They perform faster than the government and have the expertise to deal with businesses. Compared to 2008, I see their role as "good guys" this time round.

I'd like to see a version of this article and headline that figures out the effort required by the banks to administer a program like this.

Quick read looks like 2.8% off the top, for 0 risk (10/349).

Total businesses receiving loans was 1.6M (https://www.pymnts.com/loans/2020/sba-lenders-approval-ppp-l...)

Average money a bank made per loan was 10,000,000,000/1,600,000 (assuming all banks made an equal distribution of loans)

Or $6250 per loan. Given that all loans ran out about 1 week after the program was started.

I imagine the person effort per loan was pretty variable, but that's some pretty crazy capture by the banks.

(Banking sector employs almost 1.5M people), So even if every employee working at all banks, was allocated to work on one loan each for a week. (HINT THIS DIDN'T HAPPEN) the annualized salary for each of these people would have to be 6250*52, or 325K, which it's not).

I guess my question, is how was the decision made to offer banks such a big kicker for administrating loans with nonzero, but practically 0 risk?

(of note, theoretically banks are going to need to do some serving of the loan over it's lifetime, and deal with this loan forgiveness program, etc.. so if that's the case and it's more like 2-3 weeks of person work per loan, you still get some pretty big numbers, but they feel a bit more sane)

FWIW, the banks didn’t feel like it was 0 risk, many of them were doing a lot of due diligence, document checking, etc. because they were worried about it.

I’ve seen stories of small business owners talking about how difficult it was to get the loan through due to having to go back and forth with documents etc. although I’m sure it varied per bank.

2.8% doesn’t seem like that much for me, especially considering the goal was to get the money out the door as fast as possible due to the emergency, and setting up and hiring a government bureaucracy to administer and give the loans would have cost far more in time than the solution of giving it through the banks.

Why did it need to be a bank to begin with? Are banks involved when the government hands out low interest loans for natural disasters. Do they take cuts from that money? If so, I've never heard of it before. What about the 9/11 fund? Did banks get a cut of that money as well? Why is this situation different?

The goal here was to give the money out ASAP as businesses and their employees had already been forced to shutter by the pandemic and lockdown orders and were rapidly marching toward insolvency.

Stuff like the 9/11 compensation fund was on a much longer timeline and was also much smaller - the 9/11 fund was open ended, but ended up being about $7 billion, compared to the $349 billion PPP.

Remember the PPP is intended to give out money to the entire country and that is a huge scale. There was no available mechanism to give out the money, the SBA administers a EIDL grant/loan program but lawmakers on both sides of congress didn’t believe the SBA could give the money out fast enough, so this system of having the banks get money from the SBA was created.

Perspective: 2.8% can get taken out of your credit card swipe too, and this is a heckuva lot harder than that.

I don't think the PPP loan program was "0 risk" and I don't think banks perceived it that way. If they could easily make 2.8% for 0 actual/perceived risk, there would be no reason for any bank to deny any potentially qualified applicant.

From what I read a number of national banks (eg. BofA, Chase, etc) only offered to loan to customers with previous/existing loans (banks reducing risk). I think they were wary of underwriting risk (even though the USA government made assurances to banks) and risk of perception / reputation risk if any companies they applied on behalf of turned out to defraud the PPP program (possible future reputation damage).

There's no definition of 0 risk that involves lending out 350 billion dollars of your own funds and hoping you don't make a single mistake of any kind that causes you to not get your money back. And that's even before you address the opportunity cost of lending out funds at 1% interest.

Not a popular opinion but considering the effort involved, should they not have earned fees? Should they have donated their time and resources? I'm sure it took a monumental effort to pull it together with the lack of clarity being handed down and the volume of loans to process in a short period of time. If the government wanted to do for $0 fees they would have figured out how to do it themselves. If a private business has to do it then they should be paid. If we are complaining about this what about 3M and everyone else making tons of money off of PPE? Obviously it isn't very palatable to hear about others making money off of this kind of thing but we need incentives for people to step up and help.

$10 billion from $350 billion is 3 percent.

That makes it sounds like bank is taking on some form of risk, but they're not.

Sure, bankers are paid more and there's labor involved.

But $10 billion is 1 year salary for 100,000 people making $100,000 / year.

It's obscene amount of money.

> That makes it sounds like bank is taking on some form of risk, but they're not.

They did take on some risk -- they need to ensure the loans they make conform to the law passed mere days ago in order to get the government guarantee. Beyond the massive overtime put in by bank lawyers to understand the rapidly passed law, there are apparently ambiguities and contradictions in the law that are not resolved, and losing the guarantee is a huge risk considering how many businesses on the brink are applying for free money. It's not clear where the line between risk premium and profit is, but it's not zero.

absolutely well said

The problem is they did a terrible job at it AND took a huge profit for themselves. From what I’ve heard many large banks started denying applicants very shortly after accepting applications - this after forcing many companies to submit paperwork multiple times over errors the bank made itself.

I put in an application immediately with Bank of America. My business is pretty small so our requested loan was about ~$80K. I personally know others who used the same automated system after me and received a loan while I got an email a couple days ago asking me to hope that Congress allocates more money.

The problems are pretty simple. Big banks prioritized big customers, especially those with debt to the banks. If your monthly payroll is $2.5M, are you really a mom and pop shop? Big banks then collected ridiculously high fees for a simpler process than they normally conduct. I'm guessing they literally had a team that estimated the highest fee they could charge without being punished by the government.

That has been almost exactly my experience with Bank of America (though our loan size was a little less).

We submitted our application the day it became available. We received a link to upload documents a few days later. We provided the documentation almost immediately. Other than the automated emails (which threaten delays if you reply) we received a very sketchy call from someone claiming to be a banker with BOA.

To date, we've heard nothing. Whatever they used to prioritize who received funds will probably come out in the class action lawsuit. I look forward to receiving my $18 check.

could they have done it at cost? Yes. Did they need to make a profit off this? Probably not. Are they relatively unaffected (due to prevalance of online banking and also reduced costs due to physical banks being closed)? Yes.

The banking industry is highly affected by the economic conditions that currently obtain. Default rates for all kinds of loans are skyrocketing, and this may just be the beginning of an extended period of turmoil that will rock the balance sheets of banks around the world.

I don’t think they deserve undue sympathy, but they are far from unaffected.

Banks don't make money from "online banking". They make their money from issuing loans. A ton of those loans are going to go into default so banking is going to be hit just as hard as other businesses, it's just going to happen in 3 months instead of today.

Are physical banks closed? Wouldn't banks be an essential service?

Wow this is misinformed. Posting incorrect information in such a cocky way is detrimental to the forum.

Look at any global bank's stock price throughout this crisis. Being a lender to the businesses of a shut down economy is not very profitable.

Stock price does not tell you how the fundamentals of a business are operating. Especially not in this environment, everyone's stock price is down. Also these are the banks that got a huge bailout from the government a decade ago for failures of their own making.

If a big bank goes under due to coronavirus then I will of course apologize for being wrong, but I doubt that will happen. Too big to fail remember. So we bailed them out now they could be a little more civic minded. And as I said, do it at cost, pay your staff, but don't be thinking about the next dividend payments to shareholders or bonus remuneration to the CEO

Everyone's stock price is not down. Another false statement. The majority are down though, as they should be.

I am not defending bailouts, I'm saying you should get your facts straight.

OK, not everyones individually, but look at all the major stock exchanges and their value is down. This is a good indicator that the vast majority, and therefore it means that most investors are affected similarly. Are pension funds down? Yes. Are most retail investors down? Yes. Anyone who is up is not up enough to make a difference to the market in general. So dont be disingenous, you know what i meant by 'everyone' in this instance.

it does seem like you choose to pick arguments when people generalise, opting to show how there are examples that go against their point. Even though they may be unique examples that are the opposite to what someone claims but are unrepresentative of reality. This doesn't add to the discussion, in fact it detracts because it devolves into an unnecessary flamewar. HN is not reddit so please dont try and make it like that. I hope you can see how you were being disingenous, regardless it makes me not want to continue the discussion anymore as I dont feel you are engaging honestly and are just trying to score points.

The stock prices of casino companies are also down and I know from friends working for those companies that they are making more money now than before corona. Stock price is down for almost everyone right now.

That said this crisis should have hit banks.

you think that an administrative fee of approx $20K per transaction is reasonable?

They should be reasonably compensated for and able to profit from administrating these loans but 20k is not a reasonable compensation per transaction.

Wrong thread.

It's stated like that in OP's article.

Making $15,000 from simply disbursing $300,000 seems a bit steep.

> Obviously it isn't very palatable to hear about others making money off of this kind of thing but we need incentives for people to step up and help.

With "people" you mean private businesses in this context I suppose?

If so you could call these incentives "regulations".

Regulations to work for free?

Regulations to help with small business loans with maximum $amount per transaction. If the total amount then accumulates to $10bn or more, fine nothing to see here.

I suspect that is not the case here.

Currently there are hospitals who are going bankrupt because of they've been forced to stop doing work which pays the bill and instead turn into emergency care providers at war scale.

Retailers have been forced to invested in 2 meter rule things and, perspex everywhere.

Why can't the Banks of all institutions be expected to, you know, give something back? You'd almost think that money is their core business so they always know how to come out ahead.

> If the government wanted to do for $0 fees they would have figured out how to do it themselves.

Why would you assume that?

You sound like the PR department of a bank.

How many man-hours do you think $10,000,000,000 gets you?

Alternately, what do you think the pay per man-hour ended up being?

Just considering the 2008 bank bailouts, yes they should donate their time and resources. I wish terms like these were clarified prior to releasing the stimulus $.

One of my friends is the VP of a community bank with probably somewhere around 60 locations locally. It's completely local; the businesses they work with are the barbershops, car washes, and bakeries we have in our communities. He said it's never been this crazy at the bank, working 18-hour days to make sure everything is processed timely. People automatically think of Wells Fargo, Bank of America, and Chase, but folks need to remember the amount of resources it takes to roll this program out, and that not every participating bank is a behemoth Wall Street too-big-to-fail bank.

Six months ago any company making astronomical profits, charging for their services and marking up products was fine and everyone accepted it.

Now suddenly everyone is questioning if a bank should charge such huge fees, if I should be allowed to markup N-95 masks, etc.

When Nike make a pair of shoes for $4 and sell it for $400 nobody seems to care. By now it's illegal and banned in many places to mark up toilet paper and hand sanitizer.

Not only should we be asking if banks should be making $10B in fees during this time, we should be asking if every company should be doing what they were doing just a few months ago.

That's about a 2% fee which doesn't seem out of line with other transaction processing fees that are out there. That fee probably has built in insurance for fraud and other failures. And also the cost of the transaction. I bet that fee is the same fee as a year ago?

We are back stopping the banks from failing by buying their distressed assets, changing the fdic holding requirements, helping out with overnight lending rates etc. They shouldn't be charging any fee.

Yes but these fees are huge with larger loans. Why are the fees percent based rather then flat rate? The banks giving out these loans are not taking on any risk with the loan. So how are they getting away with large fees associated with the loans?

Because successful fraud takes everything.

If the money is to mitigate risk, then why can't the fee be (mostly) refundable? The bank takes on the risk of processing some enormous transaction and takes a percentages of the transaction as insurance in case of fraud. Then after a period of time with no issues, the money flows back, less some nominal amount for the actual work involved processing the transaction.

Not from the bank, they just roll back the transaction. Some merchant might end up on the hook, though.

This is the wrong way to think about it. Rates are nearly negative, so 2% is practically 10, 100X the rates banks can earn otherwise. It's basically free money shoveled into banks, a massive boon.

Genuinely curious how federal interest rates have any relation whatsoever to fees for service and why they're being correlated here.

An uncharitable reading might assume a spurious correlation.

Bank fees are added on top of the market rate. If the rate is -1% and the bank demands a 2% fee then you will have a 1% interest rate.

"It's basically free money shoveled into banks, a massive boon." A wall street bailout disguised as a main street bailout.

That's exactly it. In effect it cost 2% to use the banking system to complete this transaction.

With these kinds of insane numbers ($350B!) even tiny percentages are huge.

Why is a 2% fee acceptable on money being given to the public during a crisis? Why can't the government just give the money directly to businesses without some middleman extracting a 2% fee?

Boggles my mind that anyone jumps to defend the banks in this scenario for what effectively amounts to a racket.

I do not feel the 'business as usual' a valid argument here!

Doctors aren't working for free, so I'm not sure why bank employees are expected to.

Actually this is normal and good.

Lawsuits claim banks prioritized loans to large businesses. JPMorgan disputes those allegations, claiming it processed loans fairly. By fairly it means it put all the small business loans in one large FIFO queue, and all the large business loans in a separate much shorter FIFO queue. Effectively prioritizing large business loans.

Interesting...what are your sources here?

This article and the Bloomberg article[1] that is currently on the front page.

From this NPR article:

> We funded more than twice as many loans for smaller businesses than the rest of the firm's clients combined," the bank said in a statement to clients. "Each business worked separately on loans for its customers. Business Banking, Chase's bank for our smaller business customers, processed loan applications generally sequentially"

Note "Each business worked separately on loans" and "processed loan applications generally sequentially". They divide their consumers up into large business and small business groups, assigning dedicated staff to each group. There are far more small businesses, making the queue for small businesses much deeper. Even though there were more workers (staff) pulling from the small business queue, there weren't enough to make up for the discrepancy in queue depth.

From the Bloomberg article:

> More than 300,000 customers of JPMorgan’s business banking unit, which serves smaller firms, applied for loans through the Paycheck Protection Program

> By comparison, about 5,500 larger, and sometimes more sophisticated, customers of the commercial banking business applied for funding.

> The data reveal that, in the race to get a loan in the first-come, first-served program, larger businesses had a leg up over smaller ones -- even when applying through the same bank.

> its commercial bank, with fewer clients, was able to process applications faster, said a person familiar with the matter.

[1] https://outline.com/HacVTV

We did our PPP loan for our agency through a small regional bank that bent over backwards to help local businesses understand the legislation and apply on time. The bank paid a bunch of salaries to be able to do this. It’s completely reasonable that they earned a small, disclosed-in-advance fee from our loan to pay for those operations.

Banks took almost 3% of the total bailout funds for loans that have almost zero risk (government backed and almost exclusively made to existing customers).

On a $350k loan, the fee was 5%, or $17.5k. On a larger loan, the fee as a % goes down, but the total value goes up. These larger loans, to my knowledge, carry no more risk, nor any more work by the bank.

Yes, the banks should earn a minimal (and probably fixed) filing fee. No, they should not receive 3% of the amount set aside for small-business assistance.

I agree those numbers are accurate. If I understand correctly, you intend for $17.5k to be a shockingly high number, but smaller banks already receive percentage origination fees on large loans that cover fixed operation costs and are not overly profitable.

Banks make somewhere around 450 billion in revenue each year. https://www.statista.com/forecasts/409713/banking-revenue-in...

This program made them 1/3 of 1 month's normal revenue

That also means that they could have easily waived the fees without taking much of a hit, just out of solidarity.

Businesses are not a charity - according to reported Q1 earnings last week they're losing million of dollars everyday just keeping the lights on.

They've lost far more even with the fees they collected from this program.

As someone said above - doctors are not working for free, why should bank employees?

> doctors are not working for free, why should bank employees?

Are rank-and-file bank employees getting a big chunk of those increased earnings? Seems like both doctors and bank employees are simply continuing to earn their regular paychecks, as they should. It's the banks' shareholders that are making way more money for basically zero risk. And execs, who get paid mostly in stock. That's the problem here.

But as I pointed out in the original post - the 10B in fees is in line with revenue the banks receive during normal times. And going off the earnings the banks posted last week, they are losing millions every day just keeping the lights on.

There is no increased earnings there is in fact very big losses. Which is another thing people tend to forget when discussing exec pay. The execs take a hit when business is bad, but the majority of employees continue getting paid.

Exec pay is high but you can't forget that much of the risk / responsibility should the business do poorly is on their heads not the majority of the workforce.

> you can't forget that much of the risk / responsibility should the business do poorly is on their heads

The worst outcome for any employee, exec or lowly serf, is the loss of their job. But it's far more devastating for a rank-and-filer to lose their job than for a highly-paid exec to lose theirs. So...no the majority of the workforce also takes on most of the risk should the business do poorly.

Not true actually. The majority of employees do not get fired. Only a minority do

And the minority that is let go get 3-6 months of severance and unemployment benefits until they inevitably find a new job - which btw is far easier to do when you are not an executive of a floundering business.

> The majority of employees do not get fired. Only a minority do

A minority end up fired but all of them potentially can be.

> And the minority that is let go get 3-6 months of severance

This is not written into any employment contract. 3-6 months sounds absurdly generous.

> unemployment benefits until they inevitably find a new job

UI benefits only offer partial wage replacement.

> which btw is far easier to do when you are not an executive of a floundering business.

Part of the reason execs get paid highly is to take on that risk. They have no excuse for not building up a healthy nest egg to get through periods of unemployment. Execs don't live paycheck-to-paycheck, or if they do, surely they should know better about managing money wisely. Otherwise why did they even have their jobs?

Execs also have way better personal networks for finding new jobs. Their friends are other execs in other companies. So it's not at all obvious that they'll be unemployed for longer than average Joe Pink Slip.

So businesses are not a charity, but the US taxpayer is? Why do we keep sending money into the banking system with no strings attached? In 2008 as well as now, banks have collected billions of dollars with no strings attached, and engaged in fraud and corruption with no consequences.

Doctors are not working for free, no, but they also didn't just vacuum up 10B of cash meant for patients either. Only the banking system has the tenacity and lack of shame to do such a thing.

> why should bank employees

I don't think anyone in this thread is talking about bank employees.

This program is vastly different from the 2008 bailouts. The banks collected a modest fee for doing work spreading money around to people who need to pay employees and rent.

In this situation the banks are simply a truck driver and small businesses are your local grocery store.

Im not going to fault the truck driver for asking to be paid to do work.

The 10B they collected was not from the government - it was paid by businesses applying for loans.

Except, if the truck driver consistently fails to deliver the goods, the truck driving company usually goes out of business. It is generally referred to as having actual skin in the game.

There has been no general business failure during this crisis. The government is mandating businesses be closed and businesses and employees are suffering because of it.

If you are only talking about 2008 then yes - that bailout was fucking dumb

Because banks lobbied congress to have this work put on their plate instead of suggesting something that might be construed as socialism.

If you know of a better way to spread 600 billion amongst 5-10 million small businesses without going through the local banks these businesses use please share with the class?

It seems apparent that the government could’ve distributed these loans to qualifying businesses if they wanted to. The government was able to distribute individual checks to people. It does not seem far fetched to extend this to business accounts.

Maybe someone else can describe technical blockers as to why the government couldn’t have done this. It seems mostly political.

The banks have a preexisting relationship with these businesses and know what they would need / qualify for. Plus provide boots on the ground for vetting.

The best the government could do was send a paltry check to pretty much EVERY american. I'm sure you'd object if they decided to send 1 million dollars to EVERY small business.

That's the best a fed government run program could accomplish with only a couple of weeks.

> The banks have a preexisting relationship with these businesses and know what they would need / qualify for. Plus provide boots on the ground for vetting.

Seems to me that the government has a comparable relationship with business. Companies report to the IRS same as individuals, and corporations are required to file annual reports with their state. You’re telling me they cant maybe slice up the market due to higher or lower risk (restaurants probably taking a way bigger hit than tech, for instance) and qualify companies according to trends in their tax filings and other data points?

Its not necessarily a question of what they could do. Its an emergency and time was valuable.

Banks have thousands if not millions of employees capable of performing basic due diligence before sending out money. A fed task force tasked with processing applications from millions of businesses would be capable of handing out money maybe summer 2021

> 5-10 million small businesses

Seems quite a small number, and easy to do from the tax-collecting databases.

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