The issue of Banks in SL.

Yes, I think there is another bank as well. Your best bet would be to place a little into each to further diversify. Or place all your money into the one which pays the highest return, depending upon the risk/return ratio you wish to pursue.

It does seem pretty weak at the moment. We're kinda like the crusaders in the dark ages inventing banking. With all due respect Desmond, converting $L to USD is moneychanging, not banking.

You can use RL banking, but I'm not sure, for instance, that Bank of America will give you a mortgage to buy a Dreamland Sim, or a personal loan for an SL Chang Tulip (or other swag).

I honestly have no idea about the co-op/credit union thing, never gave it much thought. Neualtenburg currently has drama and is not rich. It also has quite a bit of proving to do as a place to do business.

In its favor, Neualtenburg has the oldest and most developed legal and government infrastructure in SL. Listening to Philip Lindens Secondcast interview, it seems that LL will leave government and law enforcement to SL "affinity groups". In that respect, Neualtenburg is very transparent and is the furthest along.

Dear NYU students,

Your proposal may work in theory but it's going to be very hard to implement. Are you aware of the legal and tax implications? Once you move into the RL, there's a lot of regulations involved, specially in the US. To the SEC, you proposal sounds very close to an investment fund/hedge fund. And any person running a hedge fund with 30 US investors have to register with the SEC and go through annual reviews and audit. In RL, I run an offshore investment fund. And the cost of SEC compliance runs somewhere between 100k to 200k per year, including a dedicated legal and compliance officer. That's why we don't take any US investors. Of course you don't need to be bother with this if you don't care. But one day you are going to get a visit from the authorities.

I am not trying to rain on your parade. I think it's great that you are at least attempting to find solutions to the problem. Assuming you are real NYU students.

---Tiger.

Hello,

Yes all tax, security, real world laws, etc have been taken into consideration. Exactly how this is handled is not of importance to our in world investors and so for privacy and security reasons, will not be disclosed.

Can you offer proof that you are indeed a project of NYU? When I tried to access your website, SL-Bank, I was denied access. When I searched NYU.edu for the term "SL Bank" I found nothing.

Your alleged affiliation with NYU should be announced and explained clearly in a public place officially associated with NYU. Until this happens, I must assume you are merely another scam.

The risk of not being associated with or insured by any organization is part of what it is we are studying. If we helped back the bank with a grant, for example, the experiment would lose value because how people are influenced by the risk factor is part of what it is we are studying. The risk of investment is reflected in higher interest rates.

I haven't set up a website yet, although I have begun to work on it. It will just have our info card on it with our logo. As for proof that this is indeed being run by nyu students, not sure what you could do. You can email me if you want: [email]jzarwel@nyu.edu[/email] or go to my website and check out pictures I took of my dorm, lol. http://homepages.nyu.edu/~jsz210/
But once again, risk of investing or doing anything, really, in an online world comes with higher risk, due to the fact I could be anyone, and that risk is reflected in higher interest rates, as well as the ability to withdrawal your money at anytime, with your interest. But naturally, if the risk is more than you are willing to take, then you rebuff the investment and do something else with your L$. Fun talking econ on a Sat night! lol.

Prost,

Banks in SL are a joke. Until LL allows banks to hold collateral
for loans and Repo the collateral if debts aren't repaid. And to
keep every nuckle head from setting up Official Banking Operations,
SL can auction off Bank Licenses.

That would be interesting. A move away from the Classical School's theory to a more Keynesian approach. Modern indeed.

I won't use a bank on SL unless its LL..

Stable USD? *coughs from cigar smoke*

Stability options:

1) $L

2) USD

3) "banks" in SL


Choose your cough drop.




Amen.



I actually just picked up one of the "SL Chang Tulips" recently as a gift for someone - I had an interesting time getting it, but managed with some help from a friend.


With regard to Neualtenburg:

I have the highest respect for them as people, but I fail to see the financial security when my own meager holdings are likely three times their size (and I'm quire a small fish in the SL sea - just look at the map for proof). They could more realistically bank with me than the other way around - I've got more to lose if my 'government' acts in bad faith.

Teufel,

If you don't want to back your depositors 100%, better call yourself an investment fund rather than a Bank. You may not need a banking license in SL, you sure need one in the RL. I seriously doubt you have thought out all the RL issues. Are you a Stern student? If it's a grant from the University, why don't you provide proof? Are you going to invest in JPM in your name or in a corporate name. To tell us "don't worry about the details" sounds just like a scam.

---Tiger.

That's an excellent point, I don't expect you'll want a loan from a Neualtenburg Incorporated bank in the near future. Our net worth and full financials are on display here:
http://wiki.neualtenburg.info/

Just to be clear, depositing in a Neualtenburg Incorporated bank (which is 6-9 months away) is not a hedge fund investment in a sim. NB would function as a "collateral holder" for the bank, as well as a legal framework for contract enforcement and optional conflict resolution.

The investment is in the private bank, which obtains its income in the exact same way a real life savings and loan bank obtains its income. It receives mortgage and loan payments and service charges. The main difference is that this occurs in SL and it's new and untried.

So of course we'll be starting very small, not taking deposits until the revenue stream is proven. So we might be of interest to those in the market for 512m2 to 4,096m2 in any zoned sim. We might also be of interest to those land owners who would rather sell than rent or have buyers that need financing (mortgages).

Pardon me - but doesn't the more proof you give effect the thing you are trying to measure, i.e. risk with little to no knowledge?

If your systems seem professional, I think the equation will end up: -

crazy interest rates x rich people with money to burn = some deposits in the thousands of $US from the percentage of the population who love to take risks.

The only real measurement will be how much each one is willing to let ride...

I found personally my SL banking crazy interest rate temptation "kiss it goodbye" number was $500US.

People "invest" huge amounts of money in real life everyday with little to no real knowledge and the larger the numbers are the more the actual money becomes just surreal figures on a computer screen or a statement.

I dont think this will be perceptively different to most people.

Nowadays, we are so detacted from the actual financial risk that we do not really feel the risk practically at all.

Unless things go horribly, horribly wrong which we rarely, if ever, see the consequences with our own eyes. That is probably why debt is so high now.

If things were different and we could actually perceive the size of some debts that are commonly entered into, could not go bankrupt and had to by law work as manual slave labour to pay back all debts for years on end or until we repaid or died and our children took on the yoke, peeps would never consider getting a mortgage.

Two generations ago I am sure they would have though today's average household debt and lending regimes criminally insane.

Good Luck

I thought I'd throw my two cents in.

Has anyone considered that Ginko Financial now owns its own region and is (or plans too) rent out space to vendors and other residents? I mean, I'm no financial whiz, but it seems to me GF is using it's customers money to ...ah I don't know, *invest* in land. I would also think that with its own region in which to invest and draw in Lindens, it would be a more stable bank. Now I don't know how many others banks out there have their own regions (I may be making a pointless point), but with their own region to worry about...wouldn't it be harder for them to just pick up and run? And why sink money into land you have to worry about later if it's a simple scam? Misdirection?

Also (having just remembered this) Ginko has said before that it plans to open several other services, seperate from GF, including a SLExchange like exchange, a LindenX type of service, and it's own Real Estate Rental agency. Why, why, why go through all the trouble? Unless...they have a game plan to make an SL bank work. Has anyone even mentioned their lottery? Basiclly buy as many tickets a you want to see if you win? All they have to do is take in more money in ticket sales than they plan to spend out to the winner...there's a few Lindens there to pay back some of those intrest rates....

Also, consider this....they may have other land holds besides the "offical" Ginko region, in which they invest Lindens. I bank with Ginko, which is why I'm trying to support them, but even without insurance, I feel that my meger savings is safe in a bank with an established region, website access to one's acccount, forums for when you need your questions answered, and 90 ATMs spread across the world, all of which were requested by the mall/shop owners to be placed therein the first place.

Backing depositors 100% is impossible. Even real world savings accounts and treasury bonds, which have some of the lowest risk, are not backed 100%. Any investment being backed 100% is simply impossible, even if I were the US government. The grant for research projects went into my personal financial aid package. I am not making my personal finances public. You seem to think this is a very large project with thousands of dollars changing hand. The creation of this project costs, money wise, less than $130, the time put into the project in the form of research and coding, on the other hand, was many many hours. We also have a cap on the amount which can be deposited. At no time will our bank hold more than a few thousand dollars USD max. The project is being worked on by a few people from our school of business majoring in finance as well as economics majors from other schools and departments here at nyu. I never said, "Don’t worry about the details." but I did say, the inner working of how we handle taxes and funding of our bank, will remain confidential. The risks associated with you not knowing exactly who I am or knowing me in real life, has been factored into our experiment. I can't give many more details, as to not alter variables which we want to measure later. If you don't find our offer attractive, you can always go else ware, or maybe deposit only 100L for a few months to see how it goes. All up to you and how you choose is what I'm interested in.

The best advice when it comes to SL is to diversify. If you have lots of money, get it out of SL and into an investment vehicle in real life. If you just have some spending money, split it up between a few banks, buying some land, in game items, etc. This will minimize your risk, but also give you a chance to avoid inflation.

No RL bank holds a 100% rate of reserve. Ginko, and others, for example don't have all the depositor's money in a liquid form which is why large withdrawls require 1 to 2 days notice. Banks can and do fail, which is why the FDIC exists. Given the added risk in SL, I do think a much larger rate of reserve is warranted.

According to wikipedia, a full reserve system has never been implemented in RL, with the exception of currency boards, such as Hong Kong's: http://en.wikipedia.org/wiki/Full-reserve_banking

Fractional reserve banking is what happens in RL:
http://en.wikipedia.org/wiki/Fractional-reserve_banking
The US minimum reserve rate (RRR) is 10%
There are other international capital requirements.

I personally think a SL bank should be have at least 50% in liquid reserves for depositors.
Also I want to point out that banks in competition generally increase the amount of funds available in a monetary system (without minting). See http://en.wikipedia.org/wiki/Fractional-reserve_banking &
http://en.wikipedia.org/wiki/Deposit_creation_multiplier

I bring this up because it may cause inflation and devalue the $L in relation to the USD. This would occur in situations where multiple banks operate. Something to think about.

Pel,

I agree with you. But the significant difference is that in RL there's banking regulations and enforcements. You need to have minimum capital requirement to get a banking license. In SL, anyone with 100USD can setup a bank and take deposit. Banks in RL guarantee your deposit through multiple layer of gove't and private insurance. When you put money into Citibank, even if they only hold the minimun reserve requirement, your money is backed by FDIC (to a certain extent), and private insurance companies or self insurance. And there's the Fed, the lender of last resort. If you bank with an SL bank and that folds, you have the backing of some college kids with negative net worth. (I think NYU's tuituion must be over 40k per year now.)


---Tiger

And how people respond to these risks is exactly what I am interested in. Or at least risk is one of several things I will be measuring.

As I stated before, this bank is not for profit. If worst came to very worst, and the federal govt came knocking at my dorm room door and said there is no way for me to invest this money, I would simply not invest the money and instead, only take the money out of SL to avoid inflation. This would make my experiment more expensive, but it would still very much so be worth my time. Here at NYU we have many focus groups. In these groups there are usually 20-30 participants. Each participant is paid roughly $18 for about 45 mins of their time. This equates to $360 to $540 per focus group. Here in SL, I have a pre fabricated society which is already there and ready to participate. Paying a relatively large percentage out of pocket would still make the experiment economically feasible, as I would be spending much less for a long term project which included thousands of potential participants.

Anyways, yours and other's comments, etc have been interesting to hear. I guess we will see what happens and I hope to release the results after the experiment is over.

I guess you are studying Game Theory? It is one of the strong points of NYU if I remembered right. In the NYU focus groups, the participants are paid to answer questions and play the game, but in your banking experiment, the participants are giving you their money to speculate in return for what? Do you think there maybe an ethical question attached? Do you have a fiduciary duty to your investors? Well it's great that you are getting research volunteers for nothing, but what do they get? They mught as well take that money out themselves and invest in a mutual fund. There's hardly any minimum these days on MF investments.

---Tiger.

All very interesting.

I have my own Second Life Merchant Bank set up in Plush Zeta, you are all welcome to visit and assess how I have attempted to manage the implied risk of investing via Second Life into real assets that in my own opinion are very interesting......

I agree that the risk factor of any Second Life vis-à-vis First Life investment is stronger, however as I point out in my note cards if the strategy reaps success you may get back real life currency. Do your own research of course.

I'd love to drop by and "talk shop" one of these days. A merchant/commercial bank sounds interesting (and quite advanced I must say).

Tiger: Your points are fully on the mark. We're in a weird situation here with respect to regulation. It's not truly crusader banking in the dark ages because banking theory is known and well documented. We know what we "need" to do, it's just a question of implementing the infrastructure using SL mechanisms.

As I see it, there are 4 main ways for Joe Avatar to "punish" someone in SL for a transgression:

1)Forfeiture of $L held in 3rd party escrow
2)Forfeiture of Land held by sim manager
3)Banning from a Sim
4)Forum banning/moderation

The big trick is to put together a legal and regulatory framework using these (mostly #1,#2) fairly blunt instruments. We all know what needs to happen for banking to work, but the societal "laws of physics" are slightly different in this universe and we're starting from a tribal->feudal societies wielding many advanced tools and inventions.

Without this, we're left with "trust me" banking. A smart investor must verify a huge web of trust/reputation and take a calculated risk. This keeps investment down to "How much $L am I willing to set on fire in a wildly speculative investment". Trust me banking doesn't quite cut it. At best you can verify reputations using a extensive web of trust model. Personally I don't see that working as I can barely explain public key encryption web of trust to my own IT Dept. let alone Joe Avatar depositor.

Naturally we also need minimum capital, Lee Dimsum offered $L250,000 as a suggestion. Risk is higher, if LL shuts down tomorrow, all bets are off. Banks in this framework will have to offer extremely transparent financials to prospective clients.

Clients need to be able to evaluate risk. I'd also say that SL banking is obviously riskier than RL banking for the following reasons Tiger mentioned:

1)RL banking regulation is fully implemented and tested
2)RL banks have a longer track record (better reputation)
3)RL banks depend on a national government operating (as opposed to LL which is more volatile)

This is a fair chunk of risk, and deposit interest will have to compensate the client in order to make the risk/reward worthwhile.

Hiya!

Yes, you are paid in the focus groups, but how much you are paid depends on what you do/how well you do in the focus group. Not how well you participate, but how well you do in the choices you make. Some people in the same focus group go home with only $7, some go home with $35. So, you risk spending 45 min to an hour for $7, but you may get a nice big fat check for $35 for doing nothing else than pushing buttons. Here in SL, I will be paying people via interest based on the amount they are willing to risk. Interest rates go up as you risk more money.

As I advised before, if you have lots of money in SL, I'd take it out of game. If you only have a few thousand, the transaction costs, and the transfer fees from SL and other places like PayPal will eat up so much of your money, it wouldn't be worth taking out in the first place. That money can be invested in a variety of things ingame to avoid inflation and lower risk.

Yes, Game Theory is part of what I'm studying.

Just trying to get an idea of market appeal here:

Residents: Do you ever find yourself wanting to buy land you cannot currently afford out of pocket? Would you prefer the equity of a mortgage over rent? If you wanted a personal/commercial loan instead of a mortgage, would you put up land as collateral?

Landowners: Are there cases where you'd prefer to sell rather than rent? Do any of your prospective buyers need financing?

Large Transctions: In large building or service contracts would you like the security of 3rd party escrow and 3rd party binding conflict resolution? Are there large or complicated or contractual transactions you won't complete in SL because you don't trust the other party?

Any hypothetical or real examples would be nice. I have a few of my own...