Yeah, the last point you mention is the main thing I was wondering about. I think of 'banking licence' as being synonymous with 'deposit-taking licence', but the SPDI isn't that.
Regarding your earlier statement: "in aggregate the bank doesn't borrow deposits from its customers, it creates deposits for its customers"... I think it's true in aggregate across ALL banks, but less true in aggregate for an individual bank.
Imagine there are 1000 banks in the country. Customer A borrows money from Bank X, which creates a loan and a deposit balance. Presumably, A wants to spend that money (otherwise, why borrow it?), so she transfers it to Customer B, who has a 99.9% chance of banking with a different bank, let's call it Bank Y.
Now imagine this being repeated many many times, across many customers, at each of the 1000 banks. In the end:
- all of the deposits were created as the result of a bank loan, but
- for any individual bank, 99.9% of the deposits came as the result of customers receiving transfers from other banks
The obvious next question is: what, if any, mechanism puts a limit on bank X's ability to lend? If it considers a borrower credit-worthy for a $1 billion unsecured loan, can it just make the loan, even if the loan is much larger than the bank's existing balance sheet? What will happen when the borrower tries to spend some of the money with a customers of bank Y or Z?
> I think of 'banking licence' as being synonymous with 'deposit-taking licence', but the SPDI isn't that.
As I understand it, crypto-currencies are treated by the SEC like commodities, not cash, and your original comment...
> ... SPDIs seems less like banks (which borrow from depositors) than to safe deposit box operators (which provide a place where depositors can keep valuables they don't want disturbed).
... makes sense since in a crypto-currency-as-commodity world the wallets would be treated more like safe deposit boxes than bank accounts.
Regarding your earlier statement: "in aggregate the bank doesn't borrow deposits from its customers, it creates deposits for its customers"... I think it's true in aggregate across ALL banks, but less true in aggregate for an individual bank.
Imagine there are 1000 banks in the country. Customer A borrows money from Bank X, which creates a loan and a deposit balance. Presumably, A wants to spend that money (otherwise, why borrow it?), so she transfers it to Customer B, who has a 99.9% chance of banking with a different bank, let's call it Bank Y.
Now imagine this being repeated many many times, across many customers, at each of the 1000 banks. In the end:
- all of the deposits were created as the result of a bank loan, but
- for any individual bank, 99.9% of the deposits came as the result of customers receiving transfers from other banks
The obvious next question is: what, if any, mechanism puts a limit on bank X's ability to lend? If it considers a borrower credit-worthy for a $1 billion unsecured loan, can it just make the loan, even if the loan is much larger than the bank's existing balance sheet? What will happen when the borrower tries to spend some of the money with a customers of bank Y or Z?