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238 sats \ 7 replies \ @Scoresby 20h \ on: Banks and Strategy... Because That's What Strategy Is (Bloomberg, Matt Levine) econ
This has been coming up a lot for me lately: society passes onerous complicated regulations that cause market distortions, then society bemoans the market distortions.
The way Levine talks about banks made me see a contrast with insurance that I hadn't seen before: banks have on-demand deposits, insurers have on-catastrophe deposits. In general, insurers seem to have been able to work out the probabilities on how frequently they will need to pay out, why is it that banks couldn't do the same?
Levine called bank funding risky funding -- in aggregate is a demand deposit more risky than underwriting insurance? Or maybe I'm not even asking about more or less risky, I'm asking is one harder to predict than the other?
why is it that banks couldn't do the same?
they can, and they could. History -- by which I basically mean pre-regulation banking in the 18th and 19th century -- have plenty of banks figuring out the right level. (Scotland being the go-to example for all manner of innovative banking practices, including reserve management).
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One of the differences, though, is that floods can't decide to happen when they notice that you're vulnerable to a flood: i.e. bankruns aren't exogenous events.
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floods can't decide to happen when they notice that you're vulnerable to a flood
But places more vulnerable to flood have historically have had more flood damage! Clearly the floods are strategic about how they come about.
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Feature of the fiat world // he never studied banking history past the 20th C...?
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