Re: I want to set up my own bank

RFMontraz · Post by **RFMontraz** » Thu Aug 12, 2004 4:12 pm

Originally I wanted to follow the trend and set up my own hedge fund - no strategy? no credentials? no problem! - but now I'm thinking... Why not set up a whole bank instead? Smiley

Truth is that I'm only half joking... Of course I'm not seriously considering this idea but today I was looking at some very small banks names and I was thinking: how much does it take to create your own little new bank?

Say you want to offer the most basic services to qualify as one (just taking deposits for a start) and you can choose the country you want - and of course you want to go for the cheapest and most laissez faire friendly option...

PS

And yes, before you ask, I've got fuck-all better to do today...

Johnny · Post by **Johnny** » Thu Aug 12, 2004 4:15 pm

See the back pages of The Economist almost any week. Look for the "bank licences for sale" ads.

RFMontraz · Post by **RFMontraz** » Thu Aug 12, 2004 4:20 pm

But how does it work? You buy licences off the shelf just like that?

Ok, now I have the licence and an office in BVI. One guy comes and wants to open an account and deposit for £10,000. He'll send me the wire from his on-shore Barclays account. Where does the money "go"?

Arroway · Post by **Arroway** » Thu Aug 12, 2004 4:28 pm

Where does the money "go"?

I would suggest the inside breast pocket of your jacket, it's safer there.

Johnny · Post by **Johnny** » Thu Aug 12, 2004 4:29 pm

You could stash the money in your vault, guarded by your heavily armed associates. But that's not gonna make you any money.

Better would be to put the money on deposit at Citi for LIBOR and pay your depositor LIBOR-100 bps. After all, the only reason he's keeping his money with you is for anonymity. It's not as though he's really concerned about the interest.

Better still would be to scrape together all your $10,000 here and $10,000 there and invest it in ... well something with a bright future, right? And if it all goes pear shaped, well ... there's always another warm island where you can lie low for a while until the fuss dies down ...

>> btw, I copied this out of the "Sunny Islands Banking Code of Conduct" manual that I keep under my desk. I'll lend it to you if you're interested.

RFMontraz · Post by **RFMontraz** » Thu Aug 12, 2004 4:41 pm

All of a sudden I realize I don't know how a bank works....

Where does Citi put his money?

manta · Post by **manta** » Thu Aug 12, 2004 4:50 pm

They probably lend part of it to UBS, JPM, etc. Wink

kr · Post by kr » Thu Aug 12, 2004 4:55 pm

actually, on a slightly more serious note, can somebody explain how the accounting works for _fractional_reserve_ banking? borrowing and lending I get, leverage I get, fractional reserve I'm not sure I completely get...

ok, back to my sunny island...

RFMontraz · Post by **RFMontraz** » Thu Aug 12, 2004 5:01 pm

Sorry kr but here I was trying to figure out how to conceive some evil and primitive scam with the minimum effort (in case my interest in FDAX's Ponzi scheme went unnoticed).

All serious-sounding questions should be avoided. Please stick to the program Smiley

Arroway · Post by **Arroway** » Thu Aug 12, 2004 5:02 pm

Not sure what level of detail you are looking for, but, what I understand is:

Money comes in as a deposit, this amount is a credit for the bank (a liability). If it just sits in the vault @ 100%, the cash is a debit for the bank (an asset called "cash").

Then, they have to keep 10% reserve, so they lend the rest out. Let's say it was $100 at first. So, they have a liability of $100, an asset of $10 (the reserve in the vault) and to balance they need another $90 asset. That would be the loan. As interest is paid/accrued there is income generated, which is obviously posted to retained earnings.

If you are looking for more details than that, I may or may not be able to answer, but post specific questions and I (or someone else) will try. What I posted so far is obviously pretty rudimentary, but I'm not sure what it is that you don't get.