The article mentions the real core of the issue, but doesn’t make it clear that it is in fact the core: SLR (a banking regulation). SLR effectively requires banks to raise capital along with deposits. So if you flood the banking system with cash through fiscal policy, they can’t just accept all those deposits and leave them parked in their Fed reserve account. If they could, then the Fed wouldn’t need reverse repo—it could just pay interest on reserves to set a floor on interbank lending rates.

If capital is too risky to raise, why can’t a bank refuse deposits?

That would at the very least be unpopular with their customers, if not outright illegal. What would it look like to be a customer at a bank that did that? Especially for something like SVB - your startup closes its funding round, they wire the money to your bank account, and the bank refuses it?

SVB lobbied for a law that changed a crucial regulatory threshold from $50 billion to $250 billion. From ~2016 to ~2020 their assets jumped from <$50 billion to >$200 billion, with most of that happening from 2020 to 2022.

SVB was perfectly capable of restricting the total amount of assets it held. It wasn't a matter of rejecting small deposits; it was a matter of allowing (or rather, soliciting) huge clients to open new accounts to hold hundreds of millions or billions in assets.

“What do you mean my paycheck isn’t in my account?”

I don’t see that working too well …

Making payroll is chump change compared to the deposits SVP had. Maximum balance of ten million aught to do it.

> SLR effectively requires banks to raise capital along with deposits.

How is that relevant for the choice between buying treasuries and keeping the reserves?

> So if you flood the banking system with cash through fiscal policy, they can’t just accept all those deposits and leave them parked in their Fed reserve account.

Isn’t it just as possible as “just accept all those deposits and buy treasuries with the money” - if not more?

The U.S. is a capitalist system. In a capitalist system, the function of a bank is to convert savings to investments, without the government deciding which investments to make. That function must be served in both good times and, especially, bad times. Providing a risk-free place to park your money disincentives investments, especially at those times when capitalists are supposed to earn their keep--discovering ways to improve productivity when it's most difficult to find those opportunities.

That's the background context. The way it plays out is more technical. See, e.g., Matt Levine's discussion of so-called narrow banking: https://www.bloomberg.com/opinion/articles/2018-09-06/fed-re... Narrow banking is the option you're implying--permitting banks to simply be conduits to park deposits with the Fed.

> The U.S. is a capitalist system.

Really? Doesn’t look like one when it comes to large institutions or large banks. They scream “Capitalism! … for everyone” during the boom times and “Socialism! … for corporations only” when they screw up or times are tough.

What? No, the purpose of a bank is to make loans to loan worthy entities, for which they should receive adequate recompense reflecting the risk of default. Investments don't come into it. It's only in recent years that banks started doing investment, and arguably that's a big part of the problem.

Same difference - they are given capital, and they need to find a way to deploy it.

Whether they loan, invest, or do something else is their decision.

There is something really fucked up about about the idea that society owes you a risk-free place to put your cash.

We accept other risks in life - some job are dangerous, my health could be gone any moment, I might be unable to pay for trratment. My house is not safe from a calamity.

But as soon as money is not safe, there is a fucking panic.

That's like saying the purpose of a supermarket is to convert investment into grocery sales. It might be true at some level, but isn't what people describe as the purpose of a supermarket. Banks are entities for making loans. They are heavily regulated in how they do that, and part of that does come with capitalization requirements, but the purpose of a bank is to make loans.

How did you square your definition with the fact that some banks make no loans at all?

You don't need to be a bank to make a loan, I can lend money.

Me and you are regulated more than the banks are, because we are not allowed to do things banks do.

Legally the 'bank' means you have a banking licence. That is all.

This licence allows you to create money. This is a huge superpower, but there are terms and conditions attached to make sure it doesn't break the whole economy.

They also provide payment services in the modern world, and it's not intended to be definitional.

You can create money, you just can't pass that around the monetary framework. That's what the license is really about. It doesn't feel we disagree. What you wrote I totally agree with.