Should we kill this Banking System ?

Is the question that is being asked these days…Very understandably so- with the recent banks’ failure

What is the current banking system? Fractional Reserve System

You may have seen reference or heard about this.

This banking system is now many centuries old and predates any of the modern regulators (including the Fed). All banks globally follow this system.

How does this system work?

Banks lend out our deposits to generate a profit by charging interest. The term ‘fractional’ refers to the fact that banks are only required to hold a relatively small fraction of deposited funds in their reserves. Banks use some of these deposits to provide us loans. This essentially creates “Credit” that all of us rely on for multiple purposes.

We can love or hate this system, some call it fraud or scam- that banks can create money out of thin air!

What gets lost is how effective this system has been to bring prosperity in our lives. I cannot think of any person reading this post and who has not benefitted from this system. ?We now have centuries of clear evidence on how critical this link is between “money supply” (provided by banks) and our modern economic growth

All said, the banks, people that work there & systems are far from perfect. Never has been perfect. Bank runs go as far as the 17th century

This system could use some cleansing, BUT the Price is huge, that the regular person (investor) has not even experienced for a long time…Are we ready?

Perhaps, we could go back to the medieval (goldsmith) era of how business was conducted (aka “Full Reserve Banking”)?

Full Reserve means that if every single customer demanded to take their money out, the banks will have it all times. No Bank runs!

This is clearly a very safe form of banking, where banks would primarily start acting as "safe deposit box"

There is No Credit that will be offered anymore

So, if we like this new system, good luck trying to double your business in next three years, or buying that next five apartment building in the coming year that is reliant on using a 75% leverage.

Some very well known experts have advocated in past for the Full Reserve Banking, the arguments tend to get quite technical (perhaps another post ? just let me know)

For now, I would leave you with two thoughts below:

1) Next year, the governments enact a new federal law: The highway speed will be capped at 25 miles/hour, to lower fatalities caused by speeding / reckless driving. How would we feel about that? ?

2)?If all of us start making calls on our cellphone at around the same time, guess what would happen? Some of us may experience drop in service levels, because even in this day and age, the cellular infrastructure is only designed with the fundamental assumption that at any point only a certain %of population is calling around.

If you have ever found yourself near a place that was just hit by an earthquake/tornado/storm etc. quite often we are are unable to use cellphone services, even it is for a short period of time (and even if the cellular infrastructure has not been destroyed). Why ?

Because everyone is trying to use the services at around the same time, and the calls drop. Do we also advocate to change the existing telecom infrastructure ?