Is it safe?

January 21, 2010 11:21 AM

Is it safe? While it looks that the banking system is in better shape than before, some companies still seem to want to hedge their bet. A German insurance company is suing the German central bank to force them open a checking account for them. "As an insurer, it’s our very own task to manage risks and regulators demand that from us,” Mallinckrodt said. “The Bundesbank is the only lender in Germany with no risk to become insolvent, so only an account there is risk free."

Hey, if you have to have deposits then why not be safe and go with a bank that can print its own money?


"That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claimswithout limit." A. Greenspan

posted by yoyo_nyc (11 comments total)

Screw a chequing account, I want to get a line of credit with a central bank. 0.25% interest? Hell yes!
posted by GuyZero at 11:34 AM on January 21, 2010 [3 favorites]

Pretty much all the big banks have government guarantees in the U.S. these days.
posted by delmoi at 11:38 AM on January 21, 2010

Pretty much all the big banks have government guarantees in the U.S. these days.

Separate from insurance for the deposits?
posted by GuyZero at 11:52 AM on January 21, 2010

I want access to a central bank too. It's even better when you can borrow money from the fed at near 0% and then loan that money back to the government in the form of Treasuries and make a 3% margin.
posted by msbutah at 11:58 AM on January 21, 2010 [1 favorite]

IS IT SAFE?
posted by grobstein at 12:10 PM on January 21, 2010 [1 favorite]

Screw a chequing account, I want to get a line of credit with a central bank. 0.25% interest? Hell yes!

Why waste time with positive interest rates when the Swedes will give you a negative interest rate?
posted by Copronymus at 12:22 PM on January 21, 2010

Separate from insurance for the deposits?

Yeah, implicit guarantees to get bailouts.
posted by delmoi at 12:25 PM on January 21, 2010

Well, can't fault them for trying and it will be interesting to see how this case pans out. Although I wouldn't expect much.

You know we've talked about Central Banks before, and the "textbook" definition of their business case - Central Banks exist solely to provide banking services to the government as well as the banking system - ignores something I find very fascinating, but never have been able to work into a FPP nor even get clarity on: to this day, The Bank of England (BOE) still offers private accounts for a small number of individuals. Very curious. Here's how it came to pass:

Established in 1694 as a privately owned bank, the BOE offered services to the public at large as well as the English government. Keep in mind, however, the number of "banked" individuals at that time was a very, very small percentage of total population, as the Middle Class in England all but didn't exist as we know it today.

Since banking back then wasn't a very rigorous discipline from methodology point of view, and the regulatory system almost non existent, bank failures were alarmingly common; therefore size mattered. A larger deposit base meant less of a chance of a bank run taking your institution down, for starters, but also lots of money meant you could build a far more impressive premises than your competition. So size mattered, but not only the deposit base but also physical size.

The BOE grew aggressively, to no small extent trading off it's size, asset base, operational stability and reputation for providing services to not only the Government, but also Royalty. In other words, they were connected.

The BOE actually remained a privately owned bank until 1946 when it was nationalised. They did try to close private accounts, however they still offered accounts to some individuals, something they apparently still do to this day.

Hennessy (1992, 'A Domestic History of the Bank of England, 1930-1960 ') refers to this curiosity in passing a couple of times e.g.,

"the few private accounts maintained at the branches, other than those held by staff were mostly held by customers with long family or commercial connections with the bank ... "

I've got a banking text book published in 2002 by Scottish University Heriott-Watt, which also documents the existence of these business relationships.

But they aren't talked about much. I've got half a mind to do a Freedom of Information Act on the BOE someday, just to see how many private accounts are in place. Doubt they'd tell me much more than that, but it would be curious to see how many are in place.

While The Dormant Bank and Building Society Accounts Act of 2008 allows the government to claim idle accounts, they must have been abandoned for at least 15 years.

One things for sure; if these accounts predate the 1700's, the families involved are most definitely very, very well connected, Lords and such, if not outright Royalty.

Very curious issue, private accounts at Central Banks. This is somewhat common in other parts of the world, developing nations where they private banking sector hasn't been established yet.

But this is definitely not something we think of occurring in Developed Nations.
posted by Mutant at 1:12 PM on January 21, 2010 [6 favorites]

Is it safe?
posted by Eideteker at 2:54 PM on January 21, 2010

One things for sure; if these accounts predate the 1700's, the families involved are most definitely very, very well connected, Lords and such, if not outright Royalty.

They're not likely to be royalty, if you think about it. The current mob are only vaguely related to any royals from the 17th Century. Also, for each generation which produces more than one heir, the other kids (sons I suppose) move a step further away from whatever title the family had.

Very well connected? No doubt.

I also thought Coutts was the bank for royals and "aspirational" snobs.
posted by GeckoDundee at 5:03 PM on January 21, 2010

Coutts is filthy and dirty and owned by the common people. My bankers are Hoares, still a family owned private unlimited liability company.
posted by Damienmce at 4:56 AM on January 22, 2010