![]() Shareholders pressure banks to produce profits while banks pressure regulators and lawmakers for looser regulation which forces an infinitely small subset of people to make some tough decisions that impact the well-being of the common person who, by the way, knows very little about what happens to their money as soon as they deposit a paycheck.įor this system to work, the common person must put immense trust in the powers that be to good actors. Related: Bank Problems = Bearish Thumb on Stock Market Scale What you need to hearīanks are centralized organizations with the sole mission of increasing profits, and within centralized infrastructures, checks and balances are often put aside in exchange for speed and efficiency. In particular, frameworks that better mitigate excessive risk-taking and function whether or not the general public trusts it. More likely than not, you've been told that decentralized frameworks are breeding grounds for fraudulent activity when in all actuality, it's the centralized nature of our banking system that enforces the need for consistent over-regulation due to incentives that always seem to be misaligned.įractional reserve banking is a key pillar that brought us into the 21st century, but with how much the economy has grown over the past century, we must start to migrate to new banking frameworks. More likely than not, you've been told to 'rest assured' that the banking system is 'fine.' More likely than not, you've been told that the biggest risk to the United States financial system is the crypto industry. Unfortunately, many of those risks aren't well known to the general public. It's genuinely one of the greatest innovations of modern finance however, it doesn't come without its risks. Credit cards, mortgages, auto loans and small business loans are all made possible by the reshuffling of customer deposits. In fact, fractional reserve banking is one of the biggest drivers of economic growth - businesses can scale and produce more products while consumers can more easily access capital. One important item to note is that fractional reserve banking systems don't solely benefit banking institutions. Related: You Might Not Know That You're a High-Risk Customer for Mainstream Banks What you've been told See where I'm going with this? In a world where shareholders are in constant search of yield, the opportunity cost of sitting on reserves when the S&P 500 (or even real estate) pays high single-digit returns on an annual basis incentivizes risk-taking, which benefits the nation's elite at the expense of deposits (everyday Americans). In case you're wondering how much interest banks were paid for sitting on customer deposits, it was 0.15% (or 15bps) from 2020 until early 2022, when the Federal Reserve started to hike rates. ![]() Most recently, in 2020, reserve requirements were abolished and replaced with the Interest on Reserve Balances (IORB) system, where banks were paid interest for funds that sat on their balance sheet, incentivizing them to lend fewer customer deposits. Set minimum reserve requirements for banks (set at 13%, 10% or 7%, depending on the type of institution)įast forward to mid-century, and minimum reserve requirements increased marginally (up to 17.5% for certain banks) before settling within the 8-10% range from the 1970s to the 2010s.Creation of the Federal Reserve Banks (in aggregate, the Federal Reserve System).All Other comprises ALM activities, equity investments, the international consumer card business, liquidating businesses, etc.In 1913, the Federal Reserve Act set out to accomplish a couple of key items: Global Markets offers sales & trading, market-making, financing, securities clearing, settlement and custody, and risk-management services. Global Banking, including Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking, provides lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services. Trust, Bank of America Private Wealth Management, offers wealth structuring, trust and banking needs and specialty asset management services. Global Wealth & Investment Management, comprising Merrill Lynch Global Wealth Management and U.S. It has 5 business units: Consumer Banking, comprising Deposits & Consumer Lending businesses, provides credit, banking and investment products and services. is one of the largest financial holding companies in the U.S.
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