# The business of banking **URL:** \ **Category:** Factual Questions\ **Created:** [December 29, 2010, 8:40pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748 "2010-12-29T20:40:11Z")\ **Posts on this page:** 10\ **Page:** 1
**Author:** ![TNWPsycho](https://avatars.discourse-cdn.com/v4/letter/t/47e85d/32.png) [@TNWPsycho](https://boards.straightdope.com/u/TNWPsycho)\ **Post date:** [December 29, 2010, 8:40pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/1 "2010-12-29T20:40:11Z")
Has, or can a large scale bank exist without the federal reserve or FDIC? If i have a billion dollars to lend out, and lend it out to safe investments, i don’t see how turning a profit would be such a problem. Obiously you would need to account for employees, taxes, utilities, bad debt, blah blah blah. But so do all businesses. So are there any banks that operate with just their own money? ---
**Author:** ![Bijou\_Drains](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bijou_drains/32/2814_2.png) [@Bijou\_Drains](https://boards.straightdope.com/u/Bijou_Drains)\ **Post date:** [December 29, 2010, 8:55pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/2 "2010-12-29T20:55:03Z")
In Tennessee in the early 80s there was a “bank” that people put their money into and it went bust. Most people had no idea it was not really a bank and therefore had no FDIC insurance so the people lost their money. They marketed as if they were a bank. A lot of people went to jail but I don’t think anyone got their money back. ---
**Author:** ![Musicat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/musicat/32/20189_2.png) [@Musicat](https://boards.straightdope.com/u/Musicat)\ **Post date:** [December 29, 2010, 8:59pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/3 "2010-12-29T20:59:35Z")
> [@TNWPsycho](#): > > So are there any banks that operate with just their own money? A financial rule of thumb: NEVER invest with your own money. Use the other [del]sucker[/del] fellow’s capital. > [@](#): > > If i have a billion dollars to lend out, and lend it out to safe investments, i don’t see how turning a profit would be such a problem. Aye, there’s the trick. Just limit yourself to safe investments. ---
**Author:** ![Bijou\_Drains](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bijou_drains/32/2814_2.png) [@Bijou\_Drains](https://boards.straightdope.com/u/Bijou_Drains)\ **Post date:** [December 29, 2010, 9:08pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/4 "2010-12-29T21:08:53Z")
A bank needs a federal or state charter and those might require them to use the FDIC. If you don’t use the word bank then it could be that anything goes. ---
**Author:** ![Absolute](https://avatars.discourse-cdn.com/v4/letter/a/b2d939/32.png) [@Absolute](https://boards.straightdope.com/u/Absolute)\ **Post date:** [December 29, 2010, 9:12pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/5 "2010-12-29T21:12:55Z")
> [@TNWPsycho](#): > > Has, or can a large scale bank exist without the federal reserve or FDIC? > > If i have a billion dollars to lend out, and lend it out to safe investments, i don’t see how turning a profit would be such a problem. > > Obiously you would need to account for employees, taxes, utilities, bad debt, blah blah blah. But so do all businesses. > > So are there any banks that operate with just their own money? What exactly do you think the Federal Reserve and FDIC do? Most banks operate in the manner you describe. The Federal Reserve and FDIC are safety nets, which step in only in emergencies (though they also act as regulators and mediators). ---
**Author:** ![Telemark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/telemark/32/372_2.png) [@Telemark](https://boards.straightdope.com/u/Telemark)\ **Post date:** [December 29, 2010, 9:24pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/6 "2010-12-29T21:24:05Z")
The only people who would invest with you would be people who are willing to lose everything. Do they sound very safe to you? ---
**Author:** ![Deeg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/deeg/32/2955_2.png) [@Deeg](https://boards.straightdope.com/u/Deeg)\ **Post date:** [December 29, 2010, 9:27pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/7 "2010-12-29T21:27:09Z")
Do the websites that allow you to make individual loans count? They aren’t a bank but they offer a service similar to what you describe in the OP. ---
**Author:** ![Caldazar](https://avatars.discourse-cdn.com/v4/letter/c/8e8cbc/32.png) [@Caldazar](https://boards.straightdope.com/u/Caldazar)\ **Post date:** [December 29, 2010, 9:55pm UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/8 "2010-12-29T21:55:31Z")
This is basically what money market funds are. They accept investor money and invest in short-term, high rated debt. They are not insured by the government, although they were briefly insured by the US Treasury as an emergency measure in 2008-2009. Many brokerages offer check-writing services and such against these funds. The returns on assets are typically fairly low, both for the investor and the mutual fund companies. ---
**Author:** ![Candyman74](https://avatars.discourse-cdn.com/v4/letter/c/ad7895/32.png) [@Candyman74](https://boards.straightdope.com/u/Candyman74)\ **Post date:** [December 30, 2010, 6:01am UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/9 "2010-12-30T06:01:20Z")
> [@TNWPsycho](#): > > Has, or can a large scale bank exist without the federal reserve or FDIC? Obligatory snarky reply: yes, many, all over the world. I apologise. ---
**Author:** ![Schnitte](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/schnitte/32/9033_2.png) [@Schnitte](https://boards.straightdope.com/u/Schnitte)\ **Post date:** [December 30, 2010, 10:18am UTC](https://boards.straightdope.com/t/the-business-of-banking/565748/10 "2010-12-30T10:18:10Z")
> [@Absolute](#): > > What exactly do you think the Federal Reserve and FDIC do? Most banks operate in the manner you describe. Well, not really, at least not if that is meant as a reply to the OP’s last sentence “So are there any banks that operate with just their own money?”. In a modern bank, the bank’s own money, i.e. its equity, is negligibly small compared to the bank’s overall operations. Take, for instance, the most recent (2009) annual balance sheet of [UBS](http://www.ubs.com/1/ShowMedia/investors/annualreporting/2009?contentId=175719&name=AR09_english.pdf) (5 MB PDF). Total assets of 1,341 billion francs, but only 41 billion francs in shareholder equity - the rest is liabilities. Banks operate with other people’s money (and moneys creation against other people’s money as reserves), not with their own.