Banks
Are An Endangered Species
The
old establishment banks — the ones that have been bailed out this
week in Spain, and in 2008 in America — are unnecessary middlemen
12
June, 2012
In
the long run, all the hullabaloo about the various global banking
crises is just hot air.
The
old establishment banks — the ones that have been bailed out this
week in Spain, and in 2008 in America — are unnecessary middlemen.
This is because of the ludicrous spreads from which they profit. They
borrow from central banks and from depositors at absurdly low rates
of interest (that’s what ZIRP is all about) and lend at vastly
higher rates. What useful function does it serve? At one time, banks
generated value by being wise lenders, lending to businesses that
they determined would add value. Today they prefer gamble up even
bigger profits in the zero-sum derivatives casino and shadow banking
whorehouse, requiring frequent bailouts when such schemes go awry.
They are dinosaurs that offer no real value to their shareholders,
their customers, or to society.
And
for all their claims of systemic importance, for all the bailouts,
all the whining, all the pontification they are gradually being
sidelined by other forms of intermediation, specifically peer-to-peer
lending wherein lenders and borrowers are matched directly often via
the internet. The lender gets interest, the borrower pays interest,
but because there is no middleman taking a (huge) cut both rates are
more favourable — the borrower pays less interest, the lender
receives more interest.
The
market for such lending has already grown to £250 million-a-year in
the UK alone. The BBC reports:
Lending via three
websites that link savers with borrowers – bypassing the banking
system – has topped £250m.
The “new age”
finance carries no protection for deposits, but is being tipped as a
serious threat to traditional banks.
The peer-to-peer
sites are led by Zopa, which has lent more than £200m since it
started in 2005.
Funding Circle,
specialising in business loans, has topped £34m, and RateSetter has
reached £24m.
Last month the
government said it would lend these sort of firms £100m to help
expand their own lending to businesses.
Alas,
the government could lend these firms ten times that (that would
still be a tiny sliver of what they have channelled to the
establishment banks in recent years) and the market would still be
rigged in favour of the establishment banks.
That’s
because of deposit insurance. Money lent peer-to-peer is not insured
by the government, whereas money deposited in banks is. This is a
heinous advantage that the dinosaur banks have been given by
government fiat, and certainly a huge stumbling block to peer-to-peer
lending forcing the dinosaur banking system to either massively cut
their spreads, or go out of business.
Governments
who want a fair free market banking system with the benefits of real
competition should either extend some form of deposit insurance to
peer-to-peer lending schemes, or should get rid of deposit insurance
altogether. Everyone wins except the banks and large financial
corporations — lenders get more interest for their money, borrowers
pay lower rates, and the parasitic establishment banking system that
has vampirised the taxpayer for trillions must either choose to
drastically reform itself to compete against peer-to-peer lending, or
go out of business.
In
a free market without the unfair advantage of deposit insurance the
banking dinosaurs profiting from huge spreads would be an endangered
species. They are only surviving and prospering because the
government has rigged the rules of the game for their favour. That
cannot last forever.
No comments:
Post a Comment
Note: only a member of this blog may post a comment.