banks & reserve rates ?? (econ technical)

Just curious -- how is it possible in SL to have banks with reserve rates below 100%? It seems that L$ transfer is "conservative" -- you can't give the same L$ to more than one party (thank goodness, in general). So how can a bank loan out more money than it has?

Or do the banks allow writing checks, which folks accept and either deposit or cash at a bank? (Or doing the equivalent thing with credit cards.) Unless there's some recognized form of credit, it seems there's no way for a bank to have a fractional reserve ratio.

What am I missing? Do we have checks and credit cards here in SL?

Thanks,
Jeff

You're missing land and RL investments from the equation. As long as a bank holds a reasonale fraction of its assets in liquid form, there's no need for it to have 100% of capital in currency.

I have no idea how long it would take to unwind their external positions in the event of a run on the L$ deposits, but presumably the larger SL banks keep sufficient supplies to forestall such an event.

Just curious what makes you think they'd make an honest effort to repay everything and not simply cash out and run?

There's an incentive to keep on going as long as no troubles occur, but once the bank "breaks" that incentive is gone especially when they're not liable for not honouring outstanding deposits.

Integrity. If you have taken the time and energy to develop a level of trust, most people wouldn't want to squander that for a few measly thousand dollars.

You're not missing anything, an SL "bank" can't have a fractional reserve ratio, it could only ever lend out an equivalent amount to what it has in assets (whether they are held in the form of cash or other forms such as land that can be realised for lindens to lend).

The real point however is that SL "banks" don't operate as banks, as far as I can tell they don't actually lend inworld because there is no security for loans in SL (eg you can't give an enforceable mortgage over SL land), it would just be the borrower's promise to repay. Nor are there any equivalents of credit cards, cheques etc.

What SL "banks" do is take deposits, invest that money in either SL or RL assets and then pay a return in the form of interest on the deposit which, if the "bank" is to be profitable, has to be less than the investment earnings on the deposit. As a depositor you are trusting the "bank" to be able to pay the interest and repay the principal on demand, you have no security.

It seems to me that you might misunderstand the term of "fractional reserve".

It all comes down to trust and reputation. I use Ginko, so I can only speak of my experience with them. Personally, I have not had one bad experience....AND... everyone I know and interact with in SL that uses Ginko has never had a problem either. The interest rate is great, and they've been around awhile.

Although they do not disclose how their business method or formula works... they have a website, an owner, contact info, telephone number, etc.

People have speculated that it is a scheme of some sort, but there is no evidence of it.

Yes, there is no insurance with banks in SL, but it comes down to a smart but risky relationship. Why would an SL bank want to develop a long-standing business with many clients just to 'take the money and run'... it seems that the banks of SL want to do what they're doing, and it's worth it to them, so why would they not want to be trustworthy?

The only risk one is taking when depositing is that LL could close, SL could close, or the linden dollar value becomes worthless...

Just do some research on the bank you want to put your money in with, and go with your gut.

I could respond, just as enigmatically, by saying no I don't think I have.

But to be actually helpful, what I understand by fractional reserve banking is that a real bank can provide more in credit than it holds in actual cash deposits or physical assets (not counting the borrowers' promise to repay as a deposited asset of course).

In any event, since SL "banks" don't provide credit, the question of whether fractional reserve banking could be used is moot. If an SL bank actually wanted to lend and provided credit via some form of financial instrument that was negotiable, say by providing a virtual chequebook, then I suppose fractional reserve banking could be used.

The real way of looking at a SL Bank is that of a merchant bank or an unregulated off shore Hedge Fund, in other words a "risk" fringe "investment" (if it can be called that)

The way "interest" is added is a similar concept to that of a real life UK Assurance Company "With Profit" fund. I am not quite sure how/if/what the USA equal is in terms of the concept. But it is as old as the hills and (the concept) goes back to the 17th century.

I hope that Ginko clients are invested in the sl equal of say the Prudential in rl but would caution as in anything else nothing EVER changes in terms of risk and reward.

Look me up in world at Caledon Cay if you wish to debate this further

Regards

John

OH, as an update I hear that ABN AMRO the rl merchant and investment house are setting up in SL (source Reuters). Now that will be interesting

Ah, perhaps I'm misuing the term "reserve". I was thinking of it in terms of the Fed, rather than as a rule for how much cash banks should have on hand for withdrawals. That explains having assets in sellable property.

To sum up: SL banks can't issue credit (unless players start accepting the use of checks or some kind of credit card, where they'd have a bank account that doesn't show up as $L in the top right of the screen).

Regards,
Jeff

You use Ginko? Pure Ponzi. Here is a great breakdown both mathematically and logically why Ginko is a scam or failed project. Sure they have been around for a while, but the longer a Ponzi has been around, the closer it is to fail. Here is the link:

http://forums.secondcitizen.com/showthread.php?t=3306&highlight=ginko

Then there is the Reuters interview with the Ginko CEO. Did you read the actual interview? The guy sounds like a novice kid with no clue at all. They refuse to say who they are, how they make money, etc. Pure failed scam project.

The only "bank" I've seen in SL which is actually worth investing in is SL Bank. They tell you who they are, how they make money, invite you to visit them in real life, etc. I mean really, c'mon people; SL residents are supposed to be "educated." It is plain as day. The 70 million Ginko claims to have is BS. They have a good 20 mill in deposit MAX, and are DEEP in the hole.

Just read that link I put up. Gives a great description of Ginko's failed project. Everyone I know has pulled their money from them. Naturally you haven’t had any problems, as with any Ponzi, the whole reason they work is because for a while the "bank" can cover deposits/withdraws by paying withdraws via deposits, this is a classic Ponzi. But in the long run, they always fail. Have fun going down with the ship.

Even if it is not a scam, it is a failed project in the red. I mean sheesh, did you read the Reuters interview? That guy has no clue what he’s talking about. He sounds like my 12 year old brother.

I'm not really going to begin arguing this..... Every time anyone ever posts anything about in-world banks, there is this same post above mine... one that praises SL bank highly and one that tries to convince people that ginko is a scheme.

I have no trust in SL Bank because of the numerous employee alts that try to flock to inworld bank threads to campaign for SL bank.... it always strikes me as shady every time I see the same group of users continually posting the same comments always gearing towards the love of SL bank.

there is no proof that ginko is ponzi... to me is seems ginko is much simpler than that.... ginko uses deposits to invest (in whatever that might be).. they are using the deposited money to make money. period. there's nothing more to it, and that's the risk.
The limited mindset thinking that ginko uses the deposited money to pay other people's interest.. or to play the Lindex... it's a narrow concept....
Sure, the ginko depositers assume the risk that ginko is playing with our money to try to make money... and they could make a bad investment at any time and lose it all.... but that's not a ponzi scheme... that's a bank.

So that's my take.... SL bank has been around for a few months... ginko has been around alot longer.... SL bank uses negative campaigning to try to convince people that SL bank is better than ginko because sl bank cant beat ginko's interest rates... .and both SL bank and ginko are exactly the same.


... and so what if im wrong.... I'll lose a big whopping $20USD... big friggin deal

SL Bank had higher rates than Ginko for a good few months but lowered them because they actually care about being in the black and not just being able to say "we have the highest rates!" A higher rate isn't worth poop if one day your whole account balance is gone with your failed bank. When has SL Bank campaigned against Ginko? Every time I see anyone ask the owner of SL Bank about Ginko, he refuses to comment. For all we know, you're a Ginko alt. What's the point? If Ginko had a model that worked, why hide? I could care less as well as I have a MASSIVE 2k in SL Bank. But really man, even Reuters and Anshe say that Ginko is a scam. Open your eyes! But whatever, good luck!

Oh, and read that link. You can't argue with math and facts.

The concept of banks within Second Life is an extremely interesting idea but I struggle to understand how either bank could maintain the level of accrued interest on deposited money.

Having said that I am prepared to be proved wrong, and in particular I do note that Ginko’s comments about failed real life companies (Euron and Worldcom) in the recent Reuters interview had some merit.

I am going to introduce two new words to this debate, Alpha and Beta.

Beta is a measure of correlation to the market. For example the Diamond Trust (epic code dia) OR the Ishares 100 (epic code isf) is more or less 100% correlated to the Dow or the FT100. In short they are both an almost perfect mirror.

Alpha is a measurement of an individual’s ability to outperform the markets, for example an alpha score of 1 would indicate that the manager is able to match the market net of charges, and 2 might indicate he or she could out-perform.

My views are the people who run BOTH Ginko AND SL Bank either have alpha ratings that are sky high, OR a much more obvious solution exists to explain so called performance. Take your pick.

There is no Second Life or First Life investment that can match either Ginko or SL Bank’s performance (beta)( a general market indice or Return On Equity (ROE)) on an ongoing basis at all ever. Period.

I will comment that the search for alpha is something that both investment managers and investors hunger for, almost like the search for the Holy Grail. But consistent alpha is extremely rare and very very highly valued. I only know a small number of fund managers in the UK that are able to demonstrate that ability year in year out, it cannot even be taught and I have a theory the possession of such an ability may be linked to a type of ESP which perhaps even the individual manager concerned may not know or acknowledge they have.

Given this extraordinary rarity (in the UK investment industry no more than a few score individuals out of hundreds of thousands or even millions) am I to believe the population of Second Life currently around 1.6 million people (and a far smaller number actually active), has generated two such people.

I cannot call this one

Regards

John