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101 sats \ 3 replies \ @k00b 23 Apr \ on: Banking Works By Tricking People (Bloomberg, Matt Levine) econ
The Fed dragged its feet on opening an account for TNB, and explained its reasoning 2019, arguing that “narrowly focused depository institutions” like TNB, which “hold a very large proportion of their assets in the form of balances at Reserve Banks,” could “have the potential to complicate the implementation of monetary policy” and “disrupt financial intermediation in ways that are hard to anticipate.”
Are they implying there could be a run on broad banks to narrow banks when things hit the fan? Or, maybe, that broad banks might not exist in their size and number should narrow banks exist?
Where else do we outlaw prudence because prudence poses a systemic problem? I can't think of a parallel. Is money that different?
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135 sats \ 1 reply \ @elvismercury 23 Apr
Yeah this is on my mind too, ever since they denied Custodia's application. It's like they're invoking an analogue of Gresham's law: if they allow narrow banks, people will prefer them because they want the "good" banks, and good banks will drive out bad. So they can't allow any good.
It would sound too conspiratorial except that seems to be literally what they're saying.
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0 sats \ 0 replies \ @denlillaapan OP 20h
Yes. Mind-blowing
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55 sats \ 0 replies \ @denlillaapan OP 20h
Yes, the latter: the mere existence of narrow banks would make the regular banks less stable/more risky, and their funding more expensive.
All pretty insane
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