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TheVad
Metalworks THE INTERSTELLAR FOUNDRY
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Posted - 2008.03.15 14:25:00 -
[1]
Edited by: TheVad on 15/03/2008 14:36:05 Edited by: TheVad on 15/03/2008 14:29:16 The below article, by George G. Kaufman, echos my thoughts on this topic.
A run on a bank occurs when a large number of depositors, fearing that their bank will be unable to repay their deposits in full and on time, try to withdraw their funds immediately. This creates a problem because banks keep only a small fraction of deposits on hand in cash; they lend out the majority of deposits to borrowers or use the funds to purchase other interest-bearing assets like government securities. When a run comes, a bank must quickly increase its liquidity to meet depositors' demands. It does so primarily by selling assets, frequently at fire-sale prices. Losses on these sales can make the bank insolvent.
The danger of bank runs has been overstated. For one thing, a bank run is unlikely to cause insolvency. Suppose that depositors, worried about their bank's solvency, start a run and switch their deposits to other banks. If their concerns about the bank's solvency are unjustified, other banks in the same market area would generally gain from recycling funds they receive back to the bank experiencing the run. They would do this by making loans to the bank or by purchasing the bank's assets at non-fire-sale prices. Thus, a run is highly unlikely to make a solvent bank insolvent.
Of course, if the depositors' fears are justified and the bank is economically insolvent, other banks would be unlikely to throw good money after bad by recycling their funds to the insolvent bank. As a result the bank could not replenish its liquidity and would be forced into default. But the run would not have caused the insolvency; the insolvency had already been incurred, but not fully recognized. The recognition of the existing insolvency caused the run.
Runs are feared even more because of their potential spillover to other banks. The likelihood of this happening depends on what the "running" depositors do with their funds.
They have three choices: 1. They can redeposit the money in banks that they think are safe, known as direct redeposit. 2. If they perceive no bank to be safe, they can buy Treasury securities in a "flight to quality." But what do the sellers of the securities do? If they deposit the proceeds in banks they believe are safe, as is likely, this is an indirect redeposit. 3. If neither the depositors nor the sellers of the Treasury securities believe any bank is safe, they would hold the funds as currency outside the banking system. A run on individual banks would then be transformed into a run on the banking system as a whole.
If the run is either type 1 or 2, no great harm is done. The deposits and reserves are reshuffled among the banks, possibly including overseas banks, but they do not leave the banking system. Temporary loan disruptions may occur because borrowers have to transfer from deposit-losing to deposit-gaining banks, and interest rates and exchange rates may change. But these costs are not the calamities that people often associate with bank runs.
Higher costs could occur in a type 3 run. Currency (an important component of bank reserves) would be removed from the banking system. This would cause a multiple contraction in aggregate money and credit, which would dampen economic activity in other sectors. In addition, almost all banks would sell assets to replenish their liquidity, and few banks would buy. Fire-sale losses would be large, and the number of bank failures would increase.
Continued on next page
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TheVad
Metalworks THE INTERSTELLAR FOUNDRY
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Posted - 2008.03.15 14:27:00 -
[2]
Edited by: TheVad on 15/03/2008 14:29:52 Continued....
In practice, bank failures have been relatively infrequent. From the end of the Civil War through 1920 (after the Federal Reserve was established in 1913 but before the Federal Deposit Insurance Corporation in 1933), the bank failure rate was lower than that of nonbanks. The failure rate increased sharply in the twenties and again between 1929 and 1933, when nearly 40 percent of the nation's banks failed. Yet, from 1875 through 1933, losses from failures averaged only 0.2 percent of total deposits in the banking system annually. Losses to depositors at failed banks averaged only a fraction of the annual losses suffered by bondholders of failed nonbanking firms.
A survey of all failures of national banks from 1865 through 1936 by J. F. T. O'Connor, who was comptroller of the currency from 1933 through 1938, concluded that runs were a contributing cause in less than 15 percent of the three thousand failures. The fact that the number of runs on individual banks was far greater than this means that most runs did not lead to failures.
The evidence suggests that most bank runs were type 1 or 2, and few were of the contagious type 3. Because a type 3 runùa run on the banking systemùcauses an outflow of currency, such a run can be identified by an increase in the ratio of currency to the money supply (most of the various measures of the money supply consist of currency in the hands of the public plus different types of bank deposits). Increases in this ratio have occurred in only four periods since the Civil War, and in only twoù1893 and 1929 to 1933ùdid an unusually large number of banks fail. Thus, market forces and the banking system on its own successfully insulated runs on individual banks in most periods. Moreover, even in the 1893 and 1929-33 incidents, the evidence is unclear whether the increase in bank failures caused the economic downturn or the economic downturn caused the bank failures.
Article posted here: http://www.econlib.org/library/Enc/BankRuns.html [
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TheVad
Metalworks THE INTERSTELLAR FOUNDRY
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Posted - 2008.03.15 14:35:00 -
[3]
So someone could create a "Federal Deposit Insurance Corporation" if they choose and if they banks thought they needed the service for a small premium. In addition CCP has "majior world control" over the economy and the probability of the economy crashing is very small as long as we assume they know what they are doing.
TheVad
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Tasko Pal
Heron Corporation
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Posted - 2008.03.15 18:33:00 -
[4]
Edited by: Tasko Pal on 15/03/2008 18:33:31
Originally by: TheVad So someone could create a "Federal Deposit Insurance Corporation" if they choose and if they banks thought they needed the service for a small premium. In addition CCP has "majior world control" over the economy and the probability of the economy crashing is very small as long as we assume they know what they are doing.
TheVad
Two things. First, the premium would be relatively large because Eve banks aren't highly reliable (most probably are pretty shaky). Second, unlike the FDIC, there would be no control over banks. If I were an insurer, I would require auditor (maybe junior auditor access would do) access to every major asset of the bank. That means alts in every corporation belonging to the bank. Even that probably would leave me open to a lot of scams and risk.
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John Agrippa
Scimitar Awakening
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Posted - 2008.03.15 20:38:00 -
[5]
As far as what caused the the bank failures in the 30s, as an economist out in the real world (though not a PhD as the esteemed CCP economist is) I'd point out one weakness inherent in the US banking system at the time that Eve does not share. It has since been lifted but in the 30s single branch banking was required by law, thus not allowing a local bank to diversify its assets across regions. When local crops failed, the bank could become illiquid, and as soon as somebody sneezed it was all over. In terms of if economic failure caused bank failure or vice versa, my impression is that it is pretty clear that macro issues beyond the banks caused banks to fail, and their failure further exacerbated the problem. Eve Banks, on the other hand, can have diverse depositers.
Beyond that though, Eve is sufficiently different from the real world that I'm not sure I see a lot of value in trying to make comparisons. As far as the deposit-insurance idea goes, one need only to look at AMBAC and MBIA to know that insurance firms can fail to understand the risk of an asset or a firm. They both would've probably failed if not for outside investment. It's a good idea, but this last poster is correct; there would need to be oversight. If all someone wants to do is spend their Eve time running through other peoples assets and checking market prices, I suggest becoming a real economist in the employ of the FDIC and at least earning money for it. :)
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Shadarle
LI0NS Industries
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Posted - 2008.03.15 21:04:00 -
[6]
*sighs*
I guess we brought this on ourselves by telling people to be more active on this forum.
Remember, this is an Eve-Online forum, so try to keep discussion on topic... which means, connect them to EVE. This is not the place to discuss historical economics of the US or other economies, there are probably other forums for those interested in doing so though.
I personally think an FDIC in EVE is not only never going to happen, it would be impossible to make happen without CCP being the FDIC (which won't happen).
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Hexxx
Sebiestor tribe
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Posted - 2008.03.15 21:30:00 -
[7]
Originally by: Shadarle *sighs*
I guess we brought this on ourselves by telling people to be more active on this forum.
Remember, this is an Eve-Online forum, so try to keep discussion on topic... which means, connect them to EVE. This is not the place to discuss historical economics of the US or other economies, there are probably other forums for those interested in doing so though.
I personally think an FDIC in EVE is not only never going to happen, it would be impossible to make happen without CCP being the FDIC (which won't happen).
History is the best teacher...and I will disagree with you.
I believe EVE will have a player-run "FDIC" in a year or so. It may look a little different from what we think of the FDIC as...but I believe we'll have something very similiar to it.
Director | www.eve-bank.net
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Jamie Freely
Aliastra
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Posted - 2008.03.15 21:30:00 -
[8]
Originally by: TheVad So someone could create a "Federal Deposit Insurance Corporation".
How fun,
First FDIC is funded by deposits from the member banks, think insurance.
Second, the amount that is held is set by the fed, or other body(so not something a game can do).
Third, if you want to learn about finances and other economic systems please sign up for some college courses.
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Jamie Freely
Aliastra
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Posted - 2008.03.15 21:34:00 -
[9]
Originally by: Hexxx History is the best teacher...and I will disagree with you.
I agree, but not in a game.
Originally by: Hexxx I believe EVE will have a player-run "FDIC" in a year or so. It may look a little different from what we think of the FDIC as...but I believe we'll have something very similiar to it.
This is impossible as if a system was in place there would be people there to take advantage and break that system. Sorry just not possible in a game world.
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Kazuo Ishiguro
House of Marbles Zzz
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Posted - 2008.03.15 21:44:00 -
[10]
Well, in principle, banks could agree to co-operate and be bound by certain conditions. The problem is mainly one of enforcement - there's not much that people can do except cease co-operating in the event of a criminal act.
The only suggestion I can make is that CCP could offer to act as an incorruptible holder of deposits & collateral, perhaps via representatives of NPC corps. To an extent this is already being done, for courier contracts and BPO lockdowns, but I think that the game has reached a point where we need more complex enforcement options for corporate governance.
It then becomes a matter of defining very detailed sets of criteria under which assets could be released. Ideally, this would be fully automated. My research services Spreadsheets: Top speed calculation - Halo Implant stats |
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Hexxx
Sebiestor tribe
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Posted - 2008.03.15 21:50:00 -
[11]
Originally by: Jamie Freely
Originally by: Hexxx History is the best teacher...and I will disagree with you.
I agree, but not in a game.
Originally by: Hexxx I believe EVE will have a player-run "FDIC" in a year or so. It may look a little different from what we think of the FDIC as...but I believe we'll have something very similiar to it.
This is impossible as if a system was in place there would be people there to take advantage and break that system. Sorry just not possible in a game world.
You're assuming those people are smarter than the people running the system.
Banks doing loans would be said to be "impossible"...that is untill BMBE, FuryBank, and EBANK came around and proved Banks can work.
Just because you haven't seen it done before or can't imagine a way to do it....does not make it impossible.
Director | www.eve-bank.net
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Hexxx
Sebiestor tribe
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Posted - 2008.03.15 21:52:00 -
[12]
Originally by: Kazuo Ishiguro Well, in principle, banks could agree to co-operate and be bound by certain conditions. The problem is mainly one of enforcement - there's not much that people can do except cease co-operating in the event of a criminal act.
The only suggestion I can make is that CCP could offer to act as an incorruptible holder of deposits & collateral, perhaps via representatives of NPC corps. To an extent this is already being done, for courier contracts and BPO lockdowns, but I think that the game has reached a point where we need more complex enforcement options for corporate governance.
It then becomes a matter of defining very detailed sets of criteria under which assets could be released. Ideally, this would be fully automated.
The reality is there is no real enforcement using in-game mechanics.
Yet somehow we have a finacial market of banks, stocks, and bonds worth over 4 trillion isk.
What a crazy world we live in.
Director | www.eve-bank.net
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Jamie Freely
Aliastra
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Posted - 2008.03.15 22:01:00 -
[13]
Originally by: Hexxx You're assuming those people are smarter than the people running the system.
Just because you haven't seen it done before or can't imagine a way to do it....does not make it impossible.
FDIC works by having the FED set amounts to be deposited with a ratio of funds lent.
EX: Ebank hands over 10% of the loan amount to "the fed" so that "the fed" will insure that the deposit on hand will be paid if there is a default. The isk handed over is interest free and kept there.
Now see where there is a problem, the fed uses this and other resources to run the fed and turn a profit. I don't know your numbers but world wide the same system is used in different countries ranging from a 5% to 15% deposit rate.
If there is someone here who can run a system like this on their spare time, please stop playing the game and go get a REAL JOB. If done by players it will be forced to be half-*ss and left with holes to be exploited.
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Shadarle
LI0NS Industries
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Posted - 2008.03.15 22:09:00 -
[14]
Originally by: Hexxx Banks doing loans would be said to be "impossible"...that is untill BMBE, FuryBank, and EBANK came around and proved Banks can work.
I don't recall ever thinking someone offering loans would be impossible. I mean, people do it all the time, so simply having a group of people offering loans and raising the money through an IPO (calling it a bank) was merely an extension of what was already done.
An FDIC like system is more than an extension of what is done... it would require having tons of banks, far more than we have now. It would require ULTRA trustworthy people to be running it. It would require every bank to play a part in it.
So maybe it isn't impossible, but it is YEARS away. Not 1 year by any means.
The only way it could happen sooner is if CCP did it and we all know they won't.
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Hexxx
Sebiestor tribe
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Posted - 2008.03.15 22:21:00 -
[15]
Originally by: Jamie Freely
Originally by: Hexxx You're assuming those people are smarter than the people running the system.
Just because you haven't seen it done before or can't imagine a way to do it....does not make it impossible.
FDIC works by having the FED set amounts to be deposited with a ratio of funds lent.
EX: Ebank hands over 10% of the loan amount to "the fed" so that "the fed" will insure that the deposit on hand will be paid if there is a default. The isk handed over is interest free and kept there.
Now see where there is a problem, the fed uses this and other resources to run the fed and turn a profit. I don't know your numbers but world wide the same system is used in different countries ranging from a 5% to 15% deposit rate.
If there is someone here who can run a system like this on their spare time, please stop playing the game and go get a REAL JOB. If done by players it will be forced to be half-*ss and left with holes to be exploited.
I don't think you understand.
We don't always use an exact model used in RL. Further, the rules and regulations need not be the same as the ones used for the US Fed.
So let me explain this again;
A central bank provides regulation. This regulation can be anything. Literally.
Common regulation can apply to reserve ratios for fractional reserve Banking, but even setting a rate for loans to other Banks is regulation.
Regulation in EVE is a tricky creature, some stuff just won't work. Some does. Discussion of "enforcement" of regulations does not exactly impact something being a regulation or not...it simply impacts the enforcement of said regulations.
EBANK is a commercial Bank, and it does this successfully. Using it's profits (which are projected to be substantial) it can be set aside for "central bank" funds. It can also dictate the rate at which it loans to other Banks...in exchange for those Banks agreeing to provide the same rate to other Banks.
The Bank that sets the rules or at least organizes the regulations is a central bank or monetary authority (semantics at this point).
Hopefully I've expanded your understanding of Banking and Monetary Policy today.
Director | www.eve-bank.net
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Jamie Freely
Aliastra
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Posted - 2008.03.15 22:42:00 -
[16]
Originally by: Hexxx Hopefully I've expanded your understanding of Banking and Monetary Policy today.
Knock off the ******* trolling
As for my understanding, I don't need you to help me with understanding central bank roles and duties.
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Kwint Sommer
Lothian Quay Industries Otaku Invasion
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Posted - 2008.03.16 00:01:00 -
[17]
Originally by: Jamie Freely
Originally by: Hexxx Hopefully I've expanded your understanding of Banking and Monetary Policy today.
Knock off the ******* trolling
As for my understanding, I don't need you to help me with understanding central bank roles and duties.
Feel free to take your alt somewhere else if you don't like it.
I may not agree with Hexxx's opinion that we'll have an FDIC in a year (interbank loans to help with liquidity issues, sure, but that's a far cry from insured deposits) but he's no troll and you discredit yourself by calling him one.
Purchasing and Shipping Moon Minerals |
Jamie Freely
Aliastra
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Posted - 2008.03.16 00:11:00 -
[18]
Originally by: Kwint Sommer Feel free to take your alt somewhere else if you don't like it.
I may not agree with Hexxx's opinion that we'll have an FDIC in a year (interbank loans to help with liquidity issues, sure, but that's a far cry from insured deposits) but he's no troll and you discredit yourself by calling him one.
As I pointed out, there is no need to troll, so stop the name calling and show me how you can control a monster like Central bank without having full control over the system.
If not, stfu. As for the alt, this is my industry char and I'm somewhat new to EVE but not new to financal markets nor online games.
As for the loans to help on a bank run, I'm not sure who would come to the aid of a bank who over lend and was put it that problem with the first place. The other banks would stand to the side rather than risk helping a sinking ship.
If you think there is a JPMorgan here to help, sure, but don't think that kind of help comes free of charge. I'm just waiting to see how much of the company was handed over for the bail out.
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ECredit
ECredit Bureau
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Posted - 2008.03.16 00:19:00 -
[19]
Originally by: Jamie Freely
Originally by: TheVad So someone could create a "Federal Deposit Insurance Corporation".
How fun,
First FDIC is funded by deposits from the member banks, think insurance.
Second, the amount that is held is set by the fed, or other body(so not something a game can do).
Third, if you want to learn about finances and other economic systems please sign up for some college courses.
I have a masters degree in Economics. I perfectly understand how econoimes work. I happen to just disgree with those saying that this article has no relation or application to the game. The econimics of a this game is being supported by an economist and in the latest eve quartely economic report (published by Dr. Eyj=lfur Gu=mundsson) there is plenty of content to in thsat report to support simiarities between eves market and the real worlds.
TheVad
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Jamie Freely
Aliastra
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Posted - 2008.03.16 00:28:00 -
[20]
Originally by: ECredit I have a masters degree in Economics. I perfectly understand how economies work. I happen to just disagree with those saying that this article has no relation or application to the game. The economics of a this game is being supported by an economist and in the latest eve quarterly economic report (published by Dr. Eyj=lfur Gu=mundsson) there is plenty of content to in that report to support similarities between eves market and the real worlds.
TheVad
I would love to say I'm wrong, but I don't see how you can have insured deposits with player run banks.
Within the frame of this game and within the time that people will put into a system I don't think its possible. Please show me where I'm wrong.
PS I fixed your spelling mistakes in your quote.
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Kazzac Elentria
Sanctuary Aegis Consortium
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Posted - 2008.03.16 00:35:00 -
[21]
Originally by: Shadarle *sighs*
I guess we brought this on ourselves by telling people to be more active on this forum.
Remember, this is an Eve-Online forum, so try to keep discussion on topic... which means, connect them to EVE. This is not the place to discuss historical economics of the US or other economies, there are probably other forums for those interested in doing so though.
I personally think an FDIC in EVE is not only never going to happen, it would be impossible to make happen without CCP being the FDIC (which won't happen).
Agreed... why would they want to add another faucet to the game when so many others are already a pain to manage? |
Hexxx
Sebiestor tribe
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Posted - 2008.03.16 00:44:00 -
[22]
Originally by: Jamie Freely
Originally by: Kwint Sommer Feel free to take your alt somewhere else if you don't like it.
I may not agree with Hexxx's opinion that we'll have an FDIC in a year (interbank loans to help with liquidity issues, sure, but that's a far cry from insured deposits) but he's no troll and you discredit yourself by calling him one.
As I pointed out, there is no need to troll, so stop the name calling and show me how you can control a monster like Central bank without having full control over the system.
If not, stfu. As for the alt, this is my industry char and I'm somewhat new to EVE but not new to financal markets nor online games.
As for the loans to help on a bank run, I'm not sure who would come to the aid of a bank who over lend and was put it that problem with the first place. The other banks would stand to the side rather than risk helping a sinking ship.
If you think there is a JPMorgan here to help, sure, but don't think that kind of help comes free of charge. I'm just waiting to see how much of the company was handed over for the bail out.
You may not agree with me and I have the suspicion you may not know me, but calling me a troll may not be your best move.
Director | www.eve-bank.net
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TheVad
Metalworks THE INTERSTELLAR FOUNDRY
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Posted - 2008.03.16 00:45:00 -
[23]
I would love to say I'm wrong, but I don't see how you can have insured deposits with player run banks.
Within the frame of this game and within the time that people will put into a system I don't think its possible. Please show me where I'm wrong.
PS I fixed your spelling mistakes in your quote.
ItÆs pretty simple. Someone forms a corp called ôbank insuranceö. It offers to pay a banks default loans in full (with justified paper work). However each month the ôbank insurance companyö charges the saving and loan bank .25% on their loaned money.
Essentially the Insurance corp is just assuming some of the risk that a bank has so that the bank doesnÆt have to burden the entire risk by itself.
Of course the service is based on trust like every other meta game service.
TheVad
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Jamie Freely
Aliastra
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Posted - 2008.03.16 00:51:00 -
[24]
Originally by: TheVad Essentially the Insurance corp is just assuming some of the risk that a bank has so that the bank doesnÆt have to burden the entire risk by itself.
Of course the service is based on trust like every other meta game service.
TheVad
And there is my problem, I lack faith.
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Hexxx
Sebiestor tribe
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Posted - 2008.03.16 00:55:00 -
[25]
Originally by: Jamie Freely
Originally by: TheVad Essentially the Insurance corp is just assuming some of the risk that a bank has so that the bank doesnÆt have to burden the entire risk by itself.
Of course the service is based on trust like every other meta game service.
TheVad
And there is my problem, I lack faith.
You do realize that the whole of finacial systems in EVE (stock exchanges, ipo's, bonds, banks, etc) is fundamentally a function of trust?
I'm not trying to be a smart alek, but this is probably the key principle to...everything.
Director | www.eve-bank.net
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Jamie Freely
Aliastra
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Posted - 2008.03.16 02:17:00 -
[26]
Originally by: Hexxx You do realize that the whole of finacial systems in EVE (stock exchanges, ipo's, bonds, banks, etc) is fundamentally a function of trust?
I'm not trying to be a smart alek, but this is probably the key principle to...everything.
I understand that all financial systems are backed by faith.
"In God WE Trust"
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Kiki Arnolds
Allied Caprican Heavy Industries
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Posted - 2008.03.16 15:46:00 -
[27]
Eve can not have a player run FDIC substitute, there are several reason:
As has been mentioned by others, the enforcement mechanisms are insufficiant to make sure that the banks are really holding the mandated % of deposits to cover a small scale bank run. The only solution would be to transfer the reserves to the FDIC, creating one massive point of failure instead of many smaller ones.
Were a large scale bank run to occur, what would happen? Lets say there was a very high reserve requirement of 50%, A bunch of creditors make a run on Bank A, having a 50% reserve, the bank can immediatly pay out to the first 50% of the depositors to demand funds, but then what? Dip in to the other banks reserves? What happens when they get run on? Or when they want thier reserves which have been spend covering the deposits of the now insolvent bank? What happens if multiple banks are run at once? All this does it tie up liquid isk as the reserve, isk that can no longer provide the banks or thier depositors a return through investment... It would create a large buffer to reduce the chance of insolvency, but I think the costs of the buffer out weigh its benifit.
The real FDIC has one huge ability that a player run version could never have, in a total banking meltdown, the FDIC can still come up with cash to cover its insured funds... how? It can print money... now clearly, the FDIC has never had to do so, and may never be forced too, it does a good job creating sa***uards to prevent such a dire situation from developing, HOWEVER it does provide the ABSOLUTE ASSURANCE that your funds would be returned to you... (and yes, printing funds is a horrible out, but it does mean your relative wealth to others holding that currency doesn't change)... a player run FDIC cannot provide that level of assurance unless the devs gave them the isk in the case of a bailout... ç¦ |
Hexxx
Sebiestor tribe
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Posted - 2008.03.16 16:19:00 -
[28]
Originally by: Kiki Arnolds Eve can not have a player run FDIC substitute, there are several reason:
As has been mentioned by others, the enforcement mechanisms are insufficiant to make sure that the banks are really holding the mandated % of deposits to cover a small scale bank run. The only solution would be to transfer the reserves to the FDIC, creating one massive point of failure instead of many smaller ones.
Were a large scale bank run to occur, what would happen? Lets say there was a very high reserve requirement of 50%, A bunch of creditors make a run on Bank A, having a 50% reserve, the bank can immediatly pay out to the first 50% of the depositors to demand funds, but then what? Dip in to the other banks reserves? What happens when they get run on? Or when they want thier reserves which have been spend covering the deposits of the now insolvent bank? What happens if multiple banks are run at once? All this does it tie up liquid isk as the reserve, isk that can no longer provide the banks or thier depositors a return through investment... It would create a large buffer to reduce the chance of insolvency, but I think the costs of the buffer out weigh its benifit.
The real FDIC has one huge ability that a player run version could never have, in a total banking meltdown, the FDIC can still come up with cash to cover its insured funds... how? It can print money... now clearly, the FDIC has never had to do so, and may never be forced too, it does a good job creating sa***uards to prevent such a dire situation from developing, HOWEVER it does provide the ABSOLUTE ASSURANCE that your funds would be returned to you... (and yes, printing funds is a horrible out, but it does mean your relative wealth to others holding that currency doesn't change)... a player run FDIC cannot provide that level of assurance unless the devs gave them the isk in the case of a bailout...
And again...
A monetary authority in EVE is going to be different from a monetary authority in RL. There are going to be differences.
Regulation can take many forms, and as long as you keep thinking of it as the same kind of regulation and rigor you see in a central bank like the US Fed you're not going to be able to see beyond the tip of your own nose.
Director | www.eve-bank.net
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Sphynx Stormlord
Anqara Tech
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Posted - 2008.03.16 16:48:00 -
[29]
Quote: HOWEVER it does provide the ABSOLUTE ASSURANCE that your funds would be returned to you
Ironically, this is only true because people believe it; as currency is only as good as those who believe in it. If people should stop valuing currency, then it becomes useless.
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Hexxx
Sebiestor tribe
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Posted - 2008.03.16 19:24:00 -
[30]
Originally by: Sphynx Stormlord
Quote: HOWEVER it does provide the ABSOLUTE ASSURANCE that your funds would be returned to you
Ironically, this is only true because people believe it; as currency is only as good as those who believe in it. If people should stop valuing currency, then it becomes useless.
Something is worth only as much as what someone pays for it, not what someone believes it's value to be. Similiar idea.
Director | www.eve-bank.net
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Daeva Vios
New Eden Credit Bureau
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Posted - 2008.03.16 20:53:00 -
[31]
Edited by: Daeva Vios on 16/03/2008 20:54:16
Originally by: Sphynx Stormlord
Quote: HOWEVER it does provide the ABSOLUTE ASSURANCE that your funds would be returned to you
Ironically, this is only true because people believe it; as currency is only as good as those who believe in it. If people should stop valuing currency, then it becomes useless.
I think you're looking for the Philosophy forum.
As far as I know, this isn't it.
You could say that time only impacts us so powerfully because we choose to live our lives according to a schedule. You could say that the science of physics is only important to us because we choose to explore the boundaries of what we know and understand.
You're still navel-gazing.
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Selene D'Celeste
The D'Celeste Trading Company
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Posted - 2008.03.16 21:08:00 -
[32]
Originally by: Hexxx Something is worth only as much as what someone pays for it, not what someone believes it's value to be. Similiar idea.
I love market systems <3
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Priest Amarr
Imperial Academy
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Posted - 2008.03.16 22:01:00 -
[33]
Edited by: Priest Amarr on 16/03/2008 22:05:14
Originally by: Daeva Vios Edited by: Daeva Vios on 16/03/2008 20:54:16
Originally by: Sphynx Stormlord
Quote: HOWEVER it does provide the ABSOLUTE ASSURANCE that your funds would be returned to you
Ironically, this is only true because people believe it; as currency is only as good as those who believe in it. If people should stop valuing currency, then it becomes useless.
I think you're looking for the Philosophy forum.
As far as I know, this isn't it.
You could say that time only impacts us so powerfully because we choose to live our lives according to a schedule. You could say that the science of physics is only important to us because we choose to explore the boundaries of what we know and understand.
You're still navel-gazing.
Actually this concept has a very solid place in economy , and it's far away from being a pure philosophy. Until 1971 a system called the Gold Standard was used to measure countries' power of printing money. Basically every bill in circulation was backed by gold in reserve banks. That system had its advantages and disadvantages but it's not the topic. After its collapse countries started to use an internal debt method. It simply means if United States (for example) wants the Federal Bank to print 10 billion dollars , the government gives the Federal Bank a note in the same amount stating these bills are backed by the government. Of course since bills are not covered by something solid like gold anymore, their value started to depend on people's trust in governments. This is why today you are witnessing a major decline in the dollar , investors don't trust the United States' power of repaying its debt anymore, therefore in the free market they value dollar less than before.
Of course this concept is irrelevant when it comes to isk. In the universe of Eve, isk is the only currency created by the only regulative body (CCP) of the universe. Although when it comes to secondary markets (bond exchange, stock exchange) we can see its affects. As an example, let's assume you deposit 5 billion isk into X Bank and receive a 5 billion isk note/bond from them. We can look at it as a alternative currency now. While the average return on bonds is 5%, if X Bank's bond pays out 15% and if X Bank has a very strong reputation , your 5 billion isk bond might worth even more than 5 billion in secondary markets. If nobody trusts X Bank you might end up getting 500 million isk for your 5 billion bond when you need to exchange it before its maturity. If X Banks bond was a currency you could simply view this ratio as currency exchange rates.
As Eve economy develops further you will see these concepts becoming important.
May Blessings Be With You Priest Amarr
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Daeva Vios
New Eden Credit Bureau
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Posted - 2008.03.16 22:52:00 -
[34]
Quote: If X Banks bond was a currency you could simply view this ratio as currency exchange rates.
But X Bank's bond is not a currency, and is not traded as such. When X Bank's bond is exchanged, isk is the medium of exchange used. Perhaps this is done in very rare and private circumstances. I know that GoonSwarm at one point had their own internal currency and in that case, the value of that currency was only as strong as trust in the value of that currency. I'm not certain if this is the case any longer. In any event, in this case, Isk is the standard currency and any statement to the contrary is as interesting and ultimately pointless as alternate universe theory. Sure it looks great on paper and it might even make sense, but how is it relevant?
If there comes a time when X Bank's bond notes are used as the primary medium of exchange and the value of the Isk can be tied to the value of X Bank's bond directly, then you can talk about Isk's value being based solely on perception. Until then, it is a matter of philosophy.
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Hexxx
Sebiestor tribe
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Posted - 2008.03.16 22:57:00 -
[35]
Originally by: Daeva Vios
Quote: If X Banks bond was a currency you could simply view this ratio as currency exchange rates.
But X Bank's bond is not a currency, and is not traded as such. When X Bank's bond is exchanged, isk is the medium of exchange used. Perhaps this is done in very rare and private circumstances. I know that GoonSwarm at one point had their own internal currency and in that case, the value of that currency was only as strong as trust in the value of that currency. I'm not certain if this is the case any longer. In any event, in this case, Isk is the standard currency and any statement to the contrary is as interesting and ultimately pointless as alternate universe theory. Sure it looks great on paper and it might even make sense, but how is it relevant?
If there comes a time when X Bank's bond notes are used as the primary medium of exchange and the value of the Isk can be tied to the value of X Bank's bond directly, then you can talk about Isk's value being based solely on perception. Until then, it is a matter of philosophy.
Hrmmm....that just gave me a really interesting idea...
Director | www.eve-bank.net
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Daeva Vios
New Eden Credit Bureau
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Posted - 2008.03.16 23:21:00 -
[36]
Ugh, don't do that Hexxx.
Sent a shiver of terror down my spine
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Brun Thorvald
Red. Red Republic
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Posted - 2008.03.17 05:12:00 -
[37]
If Hexx issued T-notes, saying 'Ebank guarantees the holder 1 million units of Tritanium on demand at Jita 4-4' then I think people would use em.
But yeah, bank runs are a problem when you dont have a working Central bank - see the Rich Man's Panic of 1907 and the role of JP Morgan in fixing it.
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Tasko Pal
Heron Corporation
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Posted - 2008.03.17 06:21:00 -
[38]
Originally by: Jamie Freely
I would love to say I'm wrong, but I don't see how you can have insured deposits with player run banks.
Within the frame of this game and within the time that people will put into a system I don't think its possible. Please show me where I'm wrong.
You just need an insurer with some credibility. For example, if I say I'll back all deposits at a bank with the uh, considerable resources at my disposal, everyone would consider it a joke. It certainly would be a strong indication that the bank was a bad investment. But if I had say a trillion isk and a good reputation at hand, and I say that I back all deposits at a bank with my reputation, then that will have some weight to it and would be a credible example of bank insurance.
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Shadarle
LI0NS Industries
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Posted - 2008.03.17 07:12:00 -
[39]
Originally by: Tasko Pal
Originally by: Jamie Freely
I would love to say I'm wrong, but I don't see how you can have insured deposits with player run banks.
Within the frame of this game and within the time that people will put into a system I don't think its possible. Please show me where I'm wrong.
You just need an insurer with some credibility. For example, if I say I'll back all deposits at a bank with the uh, considerable resources at my disposal, everyone would consider it a joke. It certainly would be a strong indication that the bank was a bad investment. But if I had say a trillion isk and a good reputation at hand, and I say that I back all deposits at a bank with my reputation, then that will have some weight to it and would be a credible example of bank insurance.
Thanks for the reputation 101 lecture... but someone saying they back deposits and having 100% insured deposits is a very different thing.
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Brisco Smiley
Peppermint Bay Trading Company
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Posted - 2008.03.17 14:37:00 -
[40]
Originally by: Kazuo Ishiguro Well, in principle, banks could agree to co-operate and be bound by certain conditions.
I think some people may have missed this, so I included it here again for their convenience.
Cheers,
Brisco Smiley
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Tasko Pal
Heron Corporation
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Posted - 2008.03.17 18:54:00 -
[41]
Originally by: Shadarle
Thanks for the reputation 101 lecture... but someone saying they back deposits and having 100% insured deposits is a very different thing.
Some people seemed to need that lecture. And I find the quibble between "backing bank deposits" (which would naturally include a variety of insurance schemes) and "100% insured" bank deposits (one fairly specific insurance scheme) to be far less important than whether the insurer pays out the promised amount in the event of a bank default.
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Jamie Freely
Aliastra
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Posted - 2008.03.17 19:02:00 -
[42]
Originally by: Tasko Pal Some people seemed to need that lecture. And I find the quibble between "backing bank deposits" (which would naturally include a variety of insurance schemes) and "100% insured" bank deposits (one fairly specific insurance scheme) to be far less important than whether the insurer pays out the promised amount in the event of a bank default.
We need to remember that nothing is guaranteed in life, and we can't trust anyone with too much as we are just opening ourselves to massive problems.
The only reason I got into this thread was because there was this idea that deposits can be 100% safe, when that just isn't possible.
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Daeva Vios
New Eden Credit Bureau
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Posted - 2008.03.17 19:37:00 -
[43]
Relying on one individual or organization to cover a run on the banks is too risky, and I am assuming that the banks already have measures in place with several outside groups to cover any runs they might encounter. This should be a last resort, however, to prevent any loss of confidence.
The banks setting up a loan network with pre-determined terms for use in the event of a bank run would serve to maintain confidence and its mere existence would serve to prevent the event that it's intended to protect against.
It's not 100% secure because nothing is 100% secure. Arguing over that point gets tiring because everyone is aware of it and if they're not they're ignoring the obvious.
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