This is a question that many of us have been asking ourselves lately. Will banks actually reach a penny for every dollar of deposits they make? I have come to the conclusion that they can, especially in the U.S., where there are numerous banks that make deposits in any amount that they need to.
In fact, there are two reasons why this will happen. First, if banks start charging more per dollar, they will find it harder to compete with other banks. As banks compete with each other (and other banks), they will be forced to lower their fees to compete with each other.
This would be a great thing, except the reason that banks don’t charge more per dollar is because they have more customers. In order to make a bank work harder, it will need to open more branches and lower its fees.
The bigger question is who will be bankable in the future? These are the millions of people who want to hold a large amount of money in their hands. In a perfect world, the banks would be able to provide this service for them. That’s a hard problem though. If banks can’t compete in the near future, they will only be able to offer loans to the people who can’t compete and, with the current low interest rates, this is probably not the case.
The question isn’t if banks can compete, but rather how, and who.
Lets take a look at some of the current options. Firstly, the traditional financial institution model. If I wanted to hold a million dollars, I’d go to a bank or trust. They would have to do what they do best and be solvent to survive. They would have to be able to get money out of the bank quickly and effectively. Thats an easy problem, but it isnt the problem that banks are faced with.
Banks are facing a bigger problem, a problem that no one has ever seen before. A trillion dollars in the bank isnt the problem, its the same problem as a billion dollars in the bank.
If we were to imagine a world where every bank was insolvent, or bankrupt, or running out of money, or running out of the banking system, that would make a very bad deal. But that isnt the problem. The problem is that banks are insolvent, or bankrupt, or running out of the banking system. In this problem, they get to keep the money they made in the first place, but they can’t spend it.
It may be a problem in theory, but in practice it is a very different problem. If companies like JPMorgan Chase, Bank of America, Citibank, etc., all stopped taking the money they make from sales and were forced to spend it on making loans, then that money would be lost. A trillion dollars in the bank makes it impossible for any US company to expand. That is the problem.
JPMorgan is the latest company to have its money tied up in the bank. It takes $12.5 billion from the government every day in interest on its loans, and they have no plans to change that policy. It’s the problem of not being able to increase the money supply.