Small Banks Don’t Like High Rates
Also rates traders, Celsius investigations, Tom Brady’s interest in crypto and streaming slot machines.
Programming note: Money Stuff will be off tomorrow and Monday, back on Tuesday.
My basic model of banking is that it is a socially beneficial trick. People deposit money in the bank, thinking that it is perfectly safe. The bank uses that money to make loans, which are risky. It is good for society, and for economic growth, if people can get money to take risks, but the people who have the money often do not want to take risks with it. The bank is a magic trick that allows risk-averse savers to fund risky projects. Like any magic trick, it requires a certain suspension of disbelief: You can’t just tell people “the way it works is that we take risks with your money, but we tell you it’s safe.” There are some genuine tools (capital, diversification, deposit insurance) to transform the risky loans into safe deposits, but there is also some residue of pure belief, and if people lose that belief then it stops working.