Any interest in a real SL bank?

Well, I was thinking of a place people could store their excess cash laying around between or while saving up for those land purchases or what ever they are saving for. I really don't expect people to put RL money in...There are a lot of campers out there, peope who like to play without putting money in.
They would get a few more lindens in the process.

Anyway there seems to be some kind of interest in banks as this thread is fairly lively.

I've been toying with the idea of a Second Life debt market for awhile now. Instead of starting a savings and loan or an investment fund, I think the most feasible financial instrument would be a debt issuance. Here's how it would work.

Issue a fixed amount of debt (in the form of bonds or syndicated loans) to raise capital for a business. The business model that offers the best risk/reward tradeoff (in my opinion) is private estates. So issue a fixed amount of bonds to pay for a couple private islands and tier. Rent or sell the land on the islands and make a small margin off tier fees every month. With this business model, you could fairly accurately predict your return. Create a market to trade these bonds. Pay periodic interest coupons, and pay down principal at a given maturity date.

Clearly, this idea faces the same problems as many other financial vehicles in SL, but I think the idea is a bit different than the rest. Also, this would be very labor intensive, more than I have time for myself. Just wanted to share my ideas while I'm at work and away from SL (I work at a hedge fund that's primarily invested in leveraged loans and HY bonds... hence my train of thought). Let me know what you guys think.

Let me add that the good thing about this idea is that it does not require RL investments. It would allow all capital to be kept within SL.

That sounds interesting (and like a lot of work).

I think being able to automate operations as much as possible would really make a business model attractive.

Have any of you gentleman, or ladies, ever traded currency on the lindex?

I thought that if you could make enough and the turnaround was fast enough, you could keep all the lindens in world and have almost complete liquidity. If someone need a very large withdrawl, you could just pull a sell order off the exchange.

I don't get it Rockwell. How's that different from just buying a sim and then renting it out?

It's not different. But instead of me or you owning the whole sim, there would be bondholders that would effectively own a share of the sims and the revenue generated from the sims. I don't need to raise capital myself, but if you had someone who was willing to manage this operation but had no money, it would be a viable option. Given that potential bondholders could trust this person

I would 100% definitely love to run an operation like this. But in my experience it's nearly impossible to find people with money in SL, let alone people with money who want to actually invest in some cockamamy scheme.

One possible way to raise capital is to get a loan from Prosper.com.

LOL! Yes, I'm not sure if your average SL resident understands debt investing well enough for something like this...

I love the idea also Seems like a much safer investment also -- even if you want to leave SL, you can always resell the whole island and split the cash with shareholders (err 'islandholders'?).

Wanna buy an island Reece? You and me, 50% each (pending other investors)?

The major hurdles of this are obvious. First, trust and accountability. Second, the back office operations would be substantial and likely prohibitive. Automation would help, but still might not make it worthwhile. Eh, it was just an idea.

Thanks for the offer Elanthius. I'm not making any investments in SL at the moment unfortunately as I'll be actively following the T.R.A.F.F.I.C West Conference, likely making some investments there should I like what I see.

However, if I were to make any investments in SL beyond my own, I must say that I would be far more inclined to do something like this rather than 'investing' in a bank.

Gah, I found someone with money but they weren't interested in my cockamamy scheme. What are th odds of that?

At least this cockamamy scheme would have more transparency and tangibility than Ginko et al.

I don't have time for it though...

The core problem is securing the debt. I know of someone that makes loans for land, but they purchase the land themselves as the security for the loan. It's a rent-to-own arrangement. But without regulation and a trusted 3rd party escrow service (LL, as far as I'm concerned), it's extremely risky for those parting with lindens in exchange for land or some other commodity/item. I would love it if LL would set up an automated escrow service for land transactions that permits payment over time and multiple purchasers.

Yes, that's the only way I'd ever consider running a bank. As you said, it's just too risky for all parties involved otherwise, regardless of one's intentions.

I am glad there has been some informed debate on SL Banks.

Rockwell, if you do work for a Hedge fund you should know you are not the first here within Second Life (rather than that of an outside investor). I personally understand quite well what leveraged loans and high yield junk bonds are so I muse an unregulated off shore hedge fund of this type could conceivably speculate in virtual land.

However how would one set the base rate in SL and against what measure or benchmark…interesting that because you would possibly have to use the prime SL bank Ginko, as a yardstick. If for example their current floating deposit rate is 0.09% per day compound, you would have to take that as base and compute from there.

That come back full circle because like all other SL financial businesses that operate entirely within SL you have to take too much on pure trust. Perhaps the time has come for Linden Labs to regulate financial services in SL, the equal perhaps of the FSA Markets Act 2000 (UK example). Ah well back to the grindstone.

I was thinking of making the rate fixed, not floating. Will do some math later to see what kind of rate would be feasible, too busy at work now...

If they own a share of the sims, then they're shareholders rather than bondholders. Or am I missing something?

What would be the entity that actually owns the islands in question? One way or another, it would have to be "me or you" owning the whole sim, because Linden Lab only deals with a single owner for any island.

Can you give a few more details about how your idea would work?

There certainly are people-with-money in SL. But there are fewer people with-money-in-SL, whether because of billing and trading limits or because of justifiable fears that a database that eats inventory and classified ads for breakfast might just make your L$ disappear too. Certainly, the very modest sums (by RL standards) raised by in-world charity campaigns provide anecdotal evidence that there is not a lot of L$ cash burning holes in virtual pockets.

Apart from the shareholder/bondholder/ownership issues in the proposal, which I don't quite understand, the actual business model to be pursued once funds have been raised sounds pretty much like what Anshe Chung and others are already doing. So if this was really a viable way to raise capital for a land business, those land barons would already be doing it.

Hey do any of you know of that SL Stock exchange in Dalma?
I noticed it when I use to live there but not really sure about the place or know much about it.

I just don't see the point in an SL bank.

I certainly concede your first point but I think you're wrong about this. As smart and wise as Anshe Chung and Desmond and all the other private continent owners are I doubt any of them think it would be worth their while to take in capital in exchange for a share in profits. Since the sums are relatively small, 10s of thousands of dollars at the most and 1600 dollars at a minimum most people choose to just fork out the cash up front and forgo bond sales or whatever.

I seriously think there's a good opportunity here but I guess I'm the only one since there aren't any other investors around. That sort of thing is often a sure sign that I'm the one making the mistake rather than absolutely everyone else being wrong <G>.

Some functions of RL banks are superfluous in SL. Parking your dollar bills in a bank and accessing them through ATMs is a basic service in RL which is not needed in SL because your wallet is built into the viewer and L$ cash is not physical.

However some things that RL banks do would still be applicable or useful in SL: paying interest on deposits, loans or lines of credit and credit cards, mortgages, convenient bill payment services and standing orders, and even things like escrow or currency hedging. Depending on the jurisdiction, some banks also offer insurance.