Today hardly a month goes by without some major banking scandal– whether a massive data breach, or a breach of trust.
One bank in particular is trying to go back to the days of traditional banking.
It’s called TNB Bank. And its model is very simple.
TNB plans to keep 100% of its customers’ funds on deposit with the Federal Reserve. They will make no loans, no investments. They will not gamble away their depositors savings on the latest financial fad.
And they’ll actually pay interest.
(TNB does not work with individual customers– they only deal with other banks.)
One little known fact is that commercial banks actually receive interest on the ‘reserve balances’ they maintain at the Federal Reserve.
It’s called the IORR (interest on required reserves), and it’s currently 2.4% as of today, April 1, 2019.
So TNB’s business model is to keep ALL of its deposits at the Fed and share a portion of that 2.4% with its customers. Safe. Simple. And even better than the original goldsmith banks.
You’d think the Federal Reserve would be jumping for joy. Finally! A bank that doesn’t risk its customers’ deposits. No more bailouts, no more financial crisis.
But you would be wrong. The Fed wants no part of this and has rejected TNB’s proposal.
Here’s where it gets really interesting: TNB filed a lawsuit, forcing the Federal Reserve to explain itself. And their response has been truly bewildering.
According to court documents, the Fed is slamming TNB’s business model, stating the bank plans to “park funds of its wealthy, institutional depositors in the [Fed] account and pass on [the interest] to them, after taking a cut for itself.”
Come again? The Federal Reserve is now a Social Justice Warrior, belittling a bank for wanting to pay interest to wealthy depositors (other financial institutions) and taking a cut for itself?
EVERY bank takes a cut for itself. Banks today pay as little as 0.01% interest to depositors… so they’re literally keeping 99% of the interest for themselves. That’s a sizable cut.
The Fed doesn’t have a problem when Wells Fargo does that. But for TNB to make a profit while providing risk-free deposits? Preposterous.
Perhaps most notably, though, the Fed states that “TNB’s novel business model could interfere with [the Fed’s] ability to . . . maintain financial stability and promote a healthy economy”.
That’s extraordinary: the Fed actually believes that risk-free banking is (a) “novel” and (b) bad for the economy.
Debt and risky speculations, on the other hand, are good for the economy.
Unreal. In a world full of so many bank scandals, the system is deliberately trying to exclude new participants who value safety.
The Whole Truth And Nothing But The Truth,