Investment Banking?

You are entitled to your opinion.

(necessary) DISCLAIMER: This post is neither meant to endorse nor condemn any and all posts in this thread, either by me or Linden Lab. The views below are solely mine.

One of the fundamentals purposes of banks is to be a conduit for the investment of funds into capital in return for the revenue that that capital produces. Capital does not necessarily have to take the form of land; it can just as easily be to buy goods and services. Banks, by being an agent of transfer for investment capital, are integral element of economic growth. With the stunning economic growth already occurring within Second Life, all the $L currently in deposit in peoples accounts, it actually makes a lot of sense to try to capitalize on those deposits to earn above average returns.

My recommendation to anyone thinking about starting a bank would be to put up the initial banking funds themselves and start lending. You could easily develop a rather simple structure of high interest rate unsecured loans and low interest rate secured loans.
If they can successfully develop a lending program, they would be in a great position to expand their operations by accepting deposits. As the first bank, they could benefit from the economic profits available to monopolies. My personal opinion is that a successful player run bank is going to happen, it is not a matter of if, its when.

Chris Linden
[email]chris@secondlife.com[/email]

Exactly. And, this has happened before to people who trusted another player to hold money for them to get past a stipend cap that was in effect pre-1.2. He had these little safe deposit style boxes that would hold your money, but the L$s were actually being held in his account. One day he just left SL, and everybody who had money in his "bank" lost it.

Until LL implements some sort of contract system that guarantees I will get my money back, I would not allow ANYONE to hold my money in a "bank." And I'm not holding my breath for this to happen, because I doubt they want to get embroiled in these sorts of business deals.

Conversely, anybody who opens a "bank" and starts giving loans takes a risk that his customers won't pay him back. What if somebody borrows L$10k, spends L$7k on stuff, sells L$3k on GOM for about US$12, buys a new basic account, transfers all his stuff and money to the new account, closes the old account, and leaves the "banker" holding the sack for the money he is owed? Technically, this is not against the TOS since you willingly and freely gave L$s to that person.

This whole idea of an in-world "bank" involves too much risk and trust for me to want to get involved with it in any way, shape or form at this point. If LL wants to regulate this industry, I might consider it. However, I have a better method of securing L$s (if I need them): use my real life bank and buy them from GOM. Simple.

Unsecured loans are given to people who are old and somewhat established, and cost an arm and a leg at the moment. The scammer cenario is possible, but not consistently, because once they become a newbie they are no longer eligible for a new loan. The profits from payers (who exist) are supposed to cover such losses. Further, the bank is primarily loaning to "itself", by investing the money under my personal control, so that risk is only present for a smal part of the working capital. As to me runing with the money, the strongest reason I have against that is the potential (and then reality ) of having a profitable growing bank. An honest and healthy long term profit always beats a dishonest short term profit in my book.

The FBSL (First Bank of SL) has been doing manual Mortages (Secured Loans) for many months now. We just haven't ramped up operations yet to do unsecured loans or accept deposits. It's all self funded now. The only way to do banking right now, is through Mortages as the only real collateral in SL is land.

I like your idea, but I worry that you will have trouble keeping investors informed of your activities, and your predicted profits from each one, and what you intend to hand out....

As a matter of fact what you're proposing is a lot like you being a public company and trading shares in yourself, which I think is fair enough... I might give a little money at first and see how it pans out. But before I invest in you I'd like to see a detailed business plan stating what you want to do, what you hope to achieve, and what you realistically predict you'll make, and what part of that you'll release to shareholders.

Hank are you the sole owner of the FBSL, or do you have partners.



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Ok, I've gone to the ATM and read the notecard, and I have 3 issues:

1. Depositing money is easy and instant, but withdrawal is not.

When you withdraw money, it will get to you only on the owner's best efforts. From the notecard:

This suggests at the very least an inadequate technical infrastructure. It can also mean that there is not enough cash cushion to process withdrawals quickly.

2. The interest rate does not seem sutainable.
It says that 1% is to be payed every week. That's around 67% or so in a year, and the compounding effect is tremendous. You could triple your investment in little more than 2 years. I believe that this kind of growth may be possible, but not sustainable over the long run. Also how scalable is the business operation if for example, somebody puts in 1,000,000 lindens will the investments be scalable enough to support the 1% interest rate? how about 100k lindens?

3. Lack of transparency of investments.
The only listed investment is a "private" currency exchange operation. saying that the "currency exchange operation is private, so nothing else can be said about it," does not inspire confidence.

Why the secrecy? Is it illegal?

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On the other hand, if true, it does seem that the investments being backed by RL wealth is a good idea.

It means two things. I do not wish to risk people hacking the ATM somehow to clean the cash reserves out, and I invest the money invested. This isn't GOM, where the money is simply held in trust. This makes issues such as bank runs easier to handle.




If at any point the 1% rate becomes unsustainable, it will be changed. For now it is, and it should continue to be for a good while, but nowhere does it say the interest rate will be 1% forever.



Yes. While most of the in-world businesses might not be able to grow fast enough to accomodate such deposits, the PCEO (private currency exchange operation) can take pretty much any money that is thrown at it, which allows us to select the in-world enterprises well and avoid bubble style mal-investments.



That isn't the only listed investment. The Poker Lounge was a L$55k investment which I gave to the bank. Unlisted things include nsecured loans that have been given and been paid back with interest, and GOM trading which is still being negotiated with a trader. I am aware that the confidential nature of the currency exchange operation, which is our main profit making enterprise, does not inspire much trust, but that is something I'm willing to accept to keep the operation private.



Not at all. It is however, too complicated to be explained on a notecard.


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Partly backed, but yea, I think that is a good idea too.