Friday, August 5, 2011

Banks Charging Money for Deposits? Outrageous says Zerohedge

According to my good friend Tyler over at zerohedge, the Bank of New York's decision to charge institutional accounts with large amounts of cash is heresy. He states that it is a move to drive holders of cash into ponzi investments like US treasuries.

I would like to remind him that that is how banking institutions used to work. They used to charge depositors of gold a storage fee. When those first banks started to loan out certificates of redeemable gold, they became immediately susceptible to bank runs because they would never have all their depositors' coins on hand.

This move by the BoNY needs to be replicated across all banks so that people get accustomed to being charged for having money at banks. Only then can we systematically set up banks that don't lend out money but instead only charged depositors a storage fee. Those banks will never have a run and bailouts will no longer be necessary.