Unfortunately the above mentioned merge is risky. The irreconcilability or scams consists of the fact that banks promise depositors they’ll get their money back at the same time as putting that money in danger by financing it on. So are there two possible bank or investment company systems. First, a functional system under which entities which acknowledge deposits give on those deposits. Because of the risks involved there, taxpayers have to stand behind private banks. Second, there is a system which solves the above problems by having the state only ensure money lodged with the condition.
As to lending, that is funded by people who specifically choose to have their money loaned on, and who buy shares or similar stakes in money lenders, and those shares are of course not the same thing as debris. A “merge” system protected by deposit insurance and LLR might seem to make sense.
In reality it’s something riddled with flaws, as follows and numbered. 1. The machine involves moral threat: the temptation to take unwanted risk, keep revenue when that works and send the costs to the insurance company when it doesn’t. 2. One common reason for having the condition insure money lenders and the ones who fund them (cited for example by the UK’s Vickers commission payment) is that doing so stimulates loans and investment.
Unfortunately the same argument applies to almost every other industry and the ones funding them. That is, the last mentioned “encourages investment” argument could similarly well be applied to all stock exchange quoted shares and corporate bonds. Obviously there’s no harm in allowing those who buy stakes in money lenders or any other industry to insure themselves against loss and some that type of insurance takes place. However, to justify the continuing state getting involved with that insurance, there must be some clear social advantage or open public purpose offered. 3. The idea that governments or regulators are actually in a position to workout likely dangers and charge an appropriate insurance superior is a tale in view of 2007 turmoil.
4. Banking institutions are destined to lobby politicians for a low insurance high quality unrealistically. 5. Whenever there are bankruptcies in virtually any industry, it is positively HEALTHY for those who funded the industry to lose out. Bankruptcies tend to indicate the industry is large too, and that resources should be diverted to alternative activities. Thus far from any open public purpose being served by deposit insurance, harm is in fact done: that is, the effect is to recompense those who finance money lending, which encourages them to engage in more income financing, or “debt creation”.
- How does accounts receivable affect the statement of cash flows for 2012
- ► January 2010 (6)
- IDFC Mutual Fund
- 15 8.27% 14.46% 13.97% 0.49%
I.e. when the FDIC reimburses depositors in a failed bank or investment company, depositors put the money in another bank or investment company. Failing to offer with malinvestments is a misallocation of resources: it reduces GDP. It might of course be argued that if condition-sponsored deposit insurance will harm or reduces GDP, then the same pertains to the private insurance (mentioned above) that may also be taken out for stakes in sectors other than banking. That debate is not totally invalid: that is, the second option form of insurance should be banned possibly.
On the other hand, private insurance is much less “sure” as state sponsored insurance in that private insurers can go bust. I.e. private insurance is in a sense not insurance. Also it’s a generally accepted rule that individuals should be allowed to do whatever they need (e.g. make sure their own hip and legs) unless some clear harm comes what they do. So it’s debatable concerning whether private insurance of investments like stock market quoted shares should be allowed or not. 6. Where money lenders are funded by stocks, the whole system is better quality. In short, banking institutions funded by equity are more resilient than where they are funded by debts (e.g. deposits).
7. Bank or investment company regulators around the world have expressed acceptance of the concept that banks should be treated like any other industry: i.e. that preferably governments should openly declare that no form of assistance shall be offered to banks in big trouble. Obviously what regulators and politicians say in private is very different. The only reason that those who fund money lenders (or any moderately risky industry) get a more substantial return than is obtainable from near without risk loans, is that the more risk is involved.