Comment by southernplaces7
1 year ago
It makes perfect sense because of the very bloody obvious point that your account isn't really a line of credit since you gave a full deposit equal to the funds you have available. If the bank wants to lend your money around as part of its fractional reserve process, that's their business, but opening an account with funds you expect to have access to at any time is not the same as asking for a loan. Please.
No, that's not even a little bit how a checking account works. Assume nothing moves instantaneously, everything has a settlement period, everything is reversible, and, apart from the bank's willingness to decline you for an account, none of that mechanism is ever exposed to you. You'll be much closer to the true nature of the system than your belief that, having "fully deposited" money into an account, the bank can safely assume it has custody of that sum of money.
This is the challenge Patrick is up against with a piece like this: most of his readers share the deeply broken assumption you've brought to it.
It doesn't matter how it works in the background. A checking account is marketed as a bank account in which your balance matches what you put into it and unlike a formal, named loan, it's necessary for many very basic transactions of daily living for even ordinary people who participate in no business banking. Thus, being frozen out by some bullshit regulatory "compliance" nonsense or some brainless, fearful risk assessment is at a whole different level than it would be if you ere denied a loan for similar reasons.
Banks that fear risk so much should organize their checking account system better for the full range of their customers, but that requires more effort than simply unbanking people and then communicating with them through grudging hostility about the reasons why as their lives take a major hit, and then being defended for this conduct by someone who gets mealy mouthed about how checking accounts are actually loans, as if they involved a major financial favor by the bank to you as a customer.
It does matter, because it is in fact how the system works, and that system constrains banks. You can be mad at the system and prefer a different system; that's fine. But once you recognize it as the system we do in fact have, you've conceded Patrick's point.
As the article points out, when you scale this problem up to business bank accounts, losses from bad credit decisions to customers can erase all the gains from the entire commercial account line of business at a bank; in other words: to factor risk and credit out of business bank accounts, you're essentially demanding that banks be insolvent.
Checking accounts are credit products.
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