It's also what Sam Bankman-Fried and others did in exchanges that acted as unregulated banks.
The system is not perfect and there are many scandals but if you compare it to what happens in crypto exchanges, its a day and night difference.
Running a machine as intended and screwing up is different from pretending doing one thing and actually doing something else and screwing up. This is also why bankers and fund managers don't usually go to jail when they lose clients money. It's not illegal to suck at your job as long as you follow the rules.
https://www.spglobal.com/marketintelligence/en/news-insights...
That are guaranteed by the US Government up to $250,000. While the average person may not know the details, the average person’s faith in the banking system is well founded. That’s why these “alt-banks”, which avoid FDIC or NCUA coverages, are so problematic.
Saying the money appears to be there is very different from the reality of it, and in the context of whether customers consent to how the system works its also feels disingenuous IMO.
Can people spend the money as though it were there? Sure. Is the money they deposited there or are they aware that 90-100% of the money was immediately allocated to something else? Almost certainly no.
Last year a few banks went tits up, all the deposits were paid.
Can you clarify what you mean by "covering the failure of a moderately sized bank"? Bank is almost never "all the money is missing". Instead, it's usually something like "we have assets > deposits, but they're long term assets that can't be liquidated immediately so we can't pay all the depositors right this second", or "we have assets < deposits, but the gap isn't big enough that FDIC can't handle it".
"Moderating risk" = depending on the US federal government bail you out?
There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman.
It impossible for a bank for example to put all their money into Dogecoin because someone got a hunch that Musk will tweet about it. To do that they will need to create some kind of instrument that allows others to bet on Musks tweeting habits.
> There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible
That's not what banks do. You can do that without being a bank, like PayPal did. Most places will have different and much lightweight regulations than banks for this and you will go to jail if you do anything more than holding and transmitting customer money.
Except PayPal has no FDIC protection.
The part of the bank (or credit union) that required the US government to provide FDIC protection was due to dealing with cash. Imagine creating a country with just electronic money. What purpose would a bank with a FDIC protection serve if the government can just operate electronic money accounts itself? And if you want to take more risk and earn a higher return, you find a broker or investment fund or investor.
Investing customers money, create money.
Most money in the world is digital already, there are many banks that don't have physical presence and traditional banks are shutting down branches more than the open because branches are just the foot soldiers. There are also countries where cash is almost not used. Banks are not about cash, they are about credit.
I don't know what a "physical bank" means though, AFAIk there's no such thing and the buildings that banks own or operate would serve functions like hosting employees/clients/systems but they might choose not to have some of those.
Banks' job isn't just keeping money safe and doing transactions. It includes maturity transformation as well.
I am not seeing the necessity of the federal government backstop to these businesses.
What does this have anything to do with maturity transformation? Are you simply trying to say that we don't need banks to do maturity transformation, and they should stick to handling transactions?
Banks don't store money. They connect money to businesses in a structured way. No banks means businesses won't get created.
Housing may be unaffordable, but people aren’t living in sod houses with dirt floors and no running water either.
Why not use banks for this as well?
So what would you say you do here at the business factory?
[…]
I connect the money with the businesses because businesses are not good at dealing with money! I have people skills, can’t you see that?
