In a latest Cause journal interview, Lyn Alden makes an excellent level:

And Lyn Alden, founding father of Lyn Alden Funding Methods, says that “banks are basically extremely leveraged bond funds with cost companies hooked up, and we contemplate it regular to maintain our financial savings there.” She argues that the Federal Reserve makes it practically unimaginable for banks to carry the majority of their clients’ deposits in money as a result of “regulators need banks to be fairly protected, however not ‘too protected.’ They need all banks to be leveraged bond funds to a point, and won’t enable safer funds to exist.

Is it actually true? Are regulators refusing to permit ultra-safe banks? John Cochrane makes the identical declare (from a 4 yr previous weblog publish):

Suppose an entrepreneur comes up with a plan for a very protected monetary establishment – it will possibly by no means fail, it will possibly by no means endure panic, it affords depositors good safety with out the necessity for deposit insurance coverage, threat regulation property, capital necessities or no matter, and it earns depositors extra curiosity than they will get anyplace else.

Slim banks are such establishments. They take deposits and make investments the proceeds in interest-bearing reserves on the Fed. They pay depositors that curiosity, minus a small markup. Pure and easy. Economists have been calling for tight banks since at the least the Thirties.

You’d assume the Fed would welcome slender banks with open arms.

You’d be improper.

Each discuss with the truth that the Fed refuses to approve “slender banks”, which make investments their funds within the most secure method attainable – accounts on the Federal Reserve.

The media focuses on errors made by bankers and/or regulators, however the banking system is designed to be unstable. Our political leaders need banks to take dangers. And when the inevitable occurs, there’s lots of ethical grandstanding.