Do you think banking is too hard for you? Are you convinced that all bankers are crooks? Would you like to follow the financial news, but you always get stuck on terms like derivatives, cryptocurrency or quantitative easing?
2007 seems ages ago. It was the final year of another era, the time before the Crisis. Whatever you prefer to call it – credit crisis, debt crisis, global financial crisis, banking crisis – the crisis has scarred the shareholders of banks. Even though ten years have passed, most bank stocks still have not recovered to their pre-crisis highs.
In an event that has been called the WannaCry ransomware attack, hackers encrypted data on computers all around the world. The victims – which included hospitals and car factories – had to pay ransom in Bitcoin to get their files back.
Computers without up to date operating systems were particularly vulnerable to the attack.
People who have never come into contact with the internal IT operations of a large company find this hard to understand. Why don’t companies just install the latest patches, like private persons do on their home computers?
However, there exists a much better description for banks. In Dutch, the formal description of banks is “geldscheppende financiële instellingen”, which literally means “money-creating financial institutions”:
As far as I can tell, Dutch is the only European language in which banks are described as active money creators1. All other languages use ‘monetary intermediation’.
Maybe everybody should take a cue from Dutch and start saying ‘money creating institutions’ from now on, so we don’t have this debate a hundred years from now 😛
I explain how banks create money in Bankers are people, too. After you’ve read my book, you’ll know more about banking than many PhD economists!
Or to be more precise, debate about the financial institutional framework edition.
How should banks be regulated? Ten years ago, this question would have only interested a few specialists. Discussions about bank supervision and the role of the central bank were way too boring for the general public1. Besides, bankers surely knew what they were doing?
The global financial crisis and its aftermath changed this complacent attitude. The existing rules did not prevent the worse financial crisis since the 1930s. Governments had to bail out banks at a moment’s notice. Politicians took drastic decisions during the panic of September 2008. While those actions were taken with little democratic oversight, national leaders2 were the only agents willing and able to stop the collapse.
One of my business ideas has recently been implemented. My former colleagues at KBC launched a platform where small business owners can find entrepreneurs who want to take over an existing company.
I had this idea when a well-run shop for fishing gear and pet products in my hometown closed down. The owners retired and none of their children was interested in continuing their work.
This was a shame, because a lot of know-how and service to customers was lost. The owners missed out on the sale of a profitable business. A sale of the going concern could have yielded much more than selling separate assets. For the bank, a sale would have brought the opportunity to manage extra retirement funds. In addition, it could offer a loan to the new owner, sell insurance1, payment solutions etc.
As I regularly have ideas for startups or other business opportunities that I cannot pursue myself, let me share an idea that I had today. Feel free to implement it! You can thank me later when you’re a millionaire.
Engineers at the US Navy are developing a robot shark. They intend to use this robot to patrol around ships and in harbors. It is normal that the Navy explores military applications first.
A clever startup could market such robots as lifeguards.
But such devices could find widespread civilian use. A clever startup could market such robots as lifeguards. Imagine a robotic lifeguard loaded with sensors that can detect when a swimmer is in trouble. And that can grab them and bring them to the surface or to shore. This would give extra support to human lifeguards. And because it is seaborne already, a robot shark would cut down valuable intervention time.
The market for such a device would be huge. Think of all the swimming pools and beaches that would want to improve the safety of their bathers. Or robot sharks could assist in saving drowning migrants in the Mediterranean.
Central banks (CentBs) have drastically expanded their balance sheets in the wake of the global financial crisis. The Federal Reserve (Fed) and the European Central Bank (ECB) followed the example of the Bank of Japan (BOJ) by buying trillions of dollars and euros worth of long-term bonds, a policy known as quantitative easing (QE).
The CentBs make these purchases by “base money”, i.e. cash and reserves1. Neglecting legal restrictions, CentBs can create base money at will.
There is a lot of controversy among economists about QE and its consequences for the balance sheets of central banks.
This post discusses the question of whether or not base money should be considered a liability of the central bank. After that issue is understood, we can clarify when the CentB can book a profit and how this affects government finances.
One of the stated goals of QE is to raise inflation. Some worry that once this happens, rising interest rates will cause massive losses to the central bank, resulting in unspecified “bad things”. I argue that these fears are unjustified. Continue reading “Central bank liabilities and profits”
I had a new KBC experience today, after being a lifelong customer and having worked for 5 years at the bank-insurance group. This time not as a client or as an employee, but as a (co-)owner of the company. The annual general meeting of shareholders was organized in the company’s Molenbeek1 headquarters this morning. Continue reading “The annual general meeting of KBC”