Oh, and they didn't become insolvent handing out crappy mortgages.

But my primary checking and money management accounts (business and personal) are with a major national bank. For cash flow, access, and generally moving money around it's hard to beat the convenience.

I like to have cash at the ready but that doesn't matter to the bank. They get 1 or 2k for nothing.

Would it be better not to have deposits and loans?

I suspect that you (and probably other readers) are injecting some of the sentiment around the "You're the product, not the customer" meme that surrounds advertising-supported tech companies. I don't think those are bad things either, but a number of other HN readers do. I'm just pointing out that this business model has existed for centuries.

Now, banks are predatory. They charge you fees for everything (including having a deposit account!!), barely if at all share revenues derived from your money, and routinely flirt with disastrous insolvency, propped up only by the largest government on Earth.

That's why people feel like they've gone from customer to Matrix-style energy plant.

(I do have a high-yield online-only savings account that pays significantly more than that, and feel like I'm much more of a supplier to them, although in some way "supplier" connotes that I'm actively doing work to provide a product or service for them, which I don't feel toward my bank. But the article is about retail banks; the bargain with most retail banks these days is "They give you convenience; you give them money, which they can loan out to make more money." That's much more like the bargain that Internet companies and TV make than the one that say AdSense, App Developers, and Uber make.)

http://bankunderground.co.uk/2015/06/30/banks-are-not-interm...

tl;dr "banks extend credit, cre­at­ing deposits in the process, and look for reserves later"

http://www.debtdeflation.com/blogs/2009/01/31/therovingcaval...

http://www.federalreserve.gov/monetarypolicy/reservereq.htm

The document is about reserve requirements for deposits. Roughly speaking, if a bank takes in $100MM of deposits, it has to keep 10% of that ($10MM) in a way that's easy to access (either as cash in a vault, or as a deposit at the central bank). That way, if a depositor wants their money back, the bank will probably be able to give it to them.

If a bank has total deposits of less than $14.5MM, then the reserve ratio is 0%, instead of 3% or 10%.

1) The bank's loan assets go up by $X 2) The bank's deposits go up by $X

Deposits are part of 'net transaction accounts'[0] so the bank would now need to hold 10% of $X in additional cash (e.g. in their vault).

So, it seems like the bank can create a loan of $X with just $0.1X of cash. Hang on, though. This assumes that the borrower just keeps the money in his bank account, which is unlikely. When she withdraws the money to spend it, the bank's reserve requirements go down by $0.1X (good) but they also need to pay out $X of cash (bad). So, it really did cost them $X to make $X of loan.

Now, if they have a CDS related to this loan, then they are insulated from the risk of default. But, how is that relevant to reserve requirements?

[0] "Net transaction accounts are total transaction accounts less amounts due from other depository institutions and less cash items in the process of collection."