Comments on: Towards a Google Bank

By: Nick_Gogerty

Nick_Gogerty — Wed, 07 Jul 2010 00:35:22 +0000

Central banks were created due to various single bank failures. Before central banking many institutions acted as banks and printed their own currency. A pharmacy in new york for instance produced US dollars. These thousands of banks across the US had currencies units (dollars) that traded at discounts or premiums to each other relative to the perceived safety of the underwriting bank.

Gold and silver backed currencies were thus considered “safe”. The initiation of central banking and a monopoly on currency note issuance to the Federal reserve central bank was created to mitigate risk. I am not advocating pro or con on the article, just providing historical context.

By: AABender1

AABender1 — Tue, 06 Jul 2010 18:49:58 +0000

It has been public policy of the United States since 1933 to separate banking interests and industrial/commercial interests. Why? Because when industrial or commercial interests have access to the public’s deposits through their own bank, they are tempted to use those cheap funds for expansion of their own enterprises. As a result, the third-party control mechanism of credit allocation is subverted. And the nation’s savings are mis-allocated. Do you really want to go down that road?

And yes, Felix, it may have worked in a few places, but the merging of bank and commercial/industrial interests has been catastrophic in many other countries over the last 40 years including Argentina, Ecuador, Thailand and others. Most of these had the characteristics of “Jeff Skilling Meets Allan Stanford.” You get the picture, I hope.

And with all due respect, I think both you and Ozimek are a bit naive about a commercial enterprise’s appetite to be regulated. Bank directors and executives are personally liable for losses of insured depository institutions. Does the Google board really want to be on the hook in case their foray into financial innovation fails? And while the liability standard is high–gross negligence–the government, when it wants to and has very high-net worth targets or high D & O insurance coverage, can be very persistent and impertinent. And by the way, when the banking institution fails, the receiver or conservator (i.e. the government) keeps all of the records. So trying arming a strong courtroom defense for your board with little or no access to data. Board governance of an innovative depository can turn out to be a personal nightmare.

Finally, if you want innovation in the payments system, you can and should achieve it outside of the mechanism that accumulates excess savings and allocates them to economically productive risk-taking.

By: KenInIL

KenInIL — Tue, 06 Jul 2010 18:20:47 +0000

At first this looked reasonable, then I remembered GMAC. I suspect there are older examples, which convinced people it was a bad idea for an ordinary company to try to be a bank too. Does anyone have any relevant history? I would guess it would be in the 1900-1930 timeframe, since that’s the period of the other forgotten lessons that are currently biting us.

By: bryanX

bryanX — Tue, 06 Jul 2010 17:01:38 +0000

That Google app looks identical to the one I created for the PayPal X Developer Challenge earlier this year: https://www.x.com/docs/DOC-1864

By: y2kurtus

y2kurtus — Tue, 06 Jul 2010 16:51:59 +0000

Felix,

As a faithful reader of your work for many years I can say that this blog entry strikes me as perhaps the most interesting you’ve ever written.

As a banker and market participant I think it is obvious that a lack of capital is holding back some extreemly noble (capital intensive) projects; wind farms, solar farms, rehabing housing stock, and many others come to mind.

It would be great to see some new particapants get into the capital allocation game. More on this topic would be much appreciated!

By: davew

davew — Tue, 06 Jul 2010 15:46:51 +0000

Bank Simple is planning on providing banking services without being a bank.