82,891
edits
Bitcoin: Difference between revisions
no edit summary
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit |
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit |
||
| Line 35: | Line 35: | ||
These intermediaries are, of course, banks. It is important that lenders to banks trust them, to know what they are doing, and to manage their assets and liabilities so that lenders will get their excess tokens back. An important way that banks do this is to act as principal: your claim, they tell their depositors, “is against me. You need not worry whether the business I lend your money to pays it back. I will pay you back regardless.” | These intermediaries are, of course, banks. It is important that lenders to banks trust them, to know what they are doing, and to manage their assets and liabilities so that lenders will get their excess tokens back. An important way that banks do this is to act as principal: your claim, they tell their depositors, “is against me. You need not worry whether the business I lend your money to pays it back. I will pay you back regardless.” | ||
This is all well and good as long as the bank has enough assets to repay its lenders, of course. A bank that loses its lenders’ confidence to repay their loans is stuffed. Rules and requirements emerged to ensure banks managed their balance sheets so that this would not happen, but the basic premise of banking — borrowing a lot of small amounts for short terms, and lending a limited number of larger amounts for longer terms — means that banks have a structural a tail risk, and periodically it comes back to bite them. Northern Rock. Lehman brothers, Silicon Valley Bank and Credit Suisse | This is all well and good as long as the bank has enough assets to repay its lenders, of course. A bank that loses its lenders’ confidence to repay their loans is stuffed. Rules and requirements emerged to ensure banks managed their balance sheets so that this would not happen, but the basic premise of banking — borrowing a lot of small amounts for short terms, and lending a limited number of larger amounts for longer terms — means that banks have a structural a tail risk, and periodically it comes back to bite them. Northern Rock. Lehman brothers, Silicon Valley Bank and Credit Suisse serve as recent examples. | ||
In any case we can see these intermediaries play a valuable, specialist role, as long as we trust them to behave honourably, extract no more than a reasonable fee, and refrain from blowing up. | |||
That kind of trust is already part of the financial system. We would hardly exchange goods and services at all if we didn’t trust each other. We would not use a common token of abstract value in that exchange — which after all may be a small piece of paper with writing in it — if we did not both trust in it's value as a medium of exchange. | |||