Making a bank deposit to earn interests

[megapolis]

David, by the way, will bank have a limited liability as a separate firm within corporation or it will be an integral part of the corporation?

[David]

A bank has its own balance sheet.

[standardplayer]

What happens if the bank goes bankrupt is there some sort of deposit insurance like the FDIC or will we have bank runs?

If the bank goes bankrupt, the customers will lose all their deposits.

Customers Losing all their deposits is unrealistic:
-Depositors usually have first preference in a liquidation scenario meaning they get paid whatever the assets are worth in liquidation up to their deposit amount then the other stakeholders get paid next bondholders then shareholders.
-In the US we have deposit insurance where the first $250,000 of consumer deposits are insured by the government. So I think that there should be a guaranteed ~$2.5-$10 Million for corporate deposits and $250,000-$2.5 Million for personal/individuals deposits if the banks assets in liquidation do not cover depositors.
-There should definitely be a risk of losing you money but, only if you deposit tens, hundreds of millions or billions.

[David]

-Depositors usually have first preference in a liquidation scenario meaning they get paid whatever the assets are worth in liquidation up to their deposit amount then the other stakeholders get paid next bondholders then shareholders.

Yes, this is planned for implementation.

-In the US we have deposit insurance where the first $250,000 of consumer deposits are insured by the government. So I think that there should be a guaranteed ~$2.5-$10 Million for corporate deposits and $250,000-$2.5 Million for personal/individuals deposits if the banks assets in liquidation do not cover depositors.
-There should definitely be a risk of losing you money but, only if you deposit tens, hundreds of millions or billions.

This is not part of the implementation plan though. Would you please set up a poll and see if the community would want such a feature?

[Berbe]

Well, yeah deposits have a low-level protection so that the general population doesn't suffer that much from bank failures.
However, considering the amounts of money dealt with in this game, does it make sense? $250k seems like petty cash.

Now, there are inter-banks insurance funds some institutions tried to set up, but recent history shows they are useless, as government bailouts will always happen due to FUD about major banks failure.
Those funds serve as pretense twards general opinion, which is not simulated in this game. It's all about being a shark, right?

[standardplayer]

-Depositors usually have first preference in a liquidation scenario meaning they get paid whatever the assets are worth in liquidation up to their deposit amount then the other stakeholders get paid next bondholders then shareholders.

Yes, this is planned for implementation.

-In the US we have deposit insurance where the first $250,000 of consumer deposits are insured by the government. So I think that there should be a guaranteed ~$2.5-$10 Million for corporate deposits and $250,000-$2.5 Million for personal/individuals deposits if the banks assets in liquidation do not cover depositors.
-There should definitely be a risk of losing you money but, only if you deposit tens, hundreds of millions or billions.

This is not part of the implementation plan though. Would you please set up a poll and see if the community would want such a feature?

Done

Deposit Insurance:
http://www.enlight.com/forum/viewtopic ... 328#p26328

[standardplayer]

How do you plan to deal with large/excessive deposit amounts? Will there be deposit caps or something else so that no individual or corporation deposits will exceed say 1%-10% of Banks Total Deposits?

It would be unrealistic for a single character or company to say deposit $2.5-$50 Billion into a bank that only has $5 Billion in deposits. The amount of loans that banks compete for should also be limited by the economy for regular loans and corporations borrowing needs.

[David]

How do you plan to deal with large/excessive deposit amounts? Will there be deposit caps or something else so that no individual or corporation deposits will exceed say 1%-10% of Banks Total Deposits?

It would be unrealistic for a single character or company to say deposit $2.5-$50 Billion into a bank that only has $5 Billion in deposits. The amount of loans that banks compete for should also be limited by the economy for regular loans and corporations borrowing needs.

In your opinion, should the deposit caps be a percentage of the bank's total deposits? If so, what percentage is reasonable?

But the player can still use multiple subsidiaries to make deposits into a single bank, with an aggregated amount accounting for half or more of the bank's total deposits.

When the player decides to withdraw all the deposits at the same time, the bank will suffer liquidity problems. Do you think of any way that the game can block the player from performing such a trick to attempt to kill a bank?

[standardplayer]

How do you plan to deal with large/excessive deposit amounts? Will there be deposit caps or something else so that no individual or corporation deposits will exceed say 1%-10% of Banks Total Deposits?

It would be unrealistic for a single character or company to say deposit $2.5-$50 Billion into a bank that only has $5 Billion in deposits. The amount of loans that banks compete for should also be limited by the economy for regular loans and corporations borrowing needs.

In your opinion, should the deposit caps be a percentage of the bank's total deposits? If so, what percentage is reasonable?

But the player can still use multiple subsidiaries to make deposits into a single bank, with an aggregated amount accounting for half or more of the bank's total deposits.

When the player decides to withdraw all the deposits at the same time, the bank will suffer liquidity problems. Do you think of any way that the game can block the player from performing such a trick to attempt to kill a bank?

Yes, Deposit Caps should be a percentage of banks total deposits.

As for the Percentages I initially said 1%-10% but after further consideration it should probably be at the lower end of the range. In this FDIC Regulation Manual page 12 deposit concentration, it says that “a large depositor is a customer or entity that owns or controls 2% or more of the bank’s total deposits.”

https://www.fdic.gov/regulations/safet ... ion6-1.pdf

So, a reasonable cap for both individuals and corporations would be 2.5%-3.0% of Deposits.

As for the subsidiary issue I can see a couple ways to deal with it:

• Simple Global Corporate Deposit Cap:
o All companies that you have financial control over (~51% ownership) can only deposit money up to the global cap 2.5%-3% for that bank. This would not be preferred but, it is an option.

• Scaling/Tiered Deposit Cap:
o Once companies that you have financial control over (~51% ownership) deposits meet the initial cap of 2.5%-3.0% of deposits any additional subsidiaries can only make up 0.5%-1% of a bank’s deposits. There would also be a Global Cap for all controlled companies of ~10%-20% of Banks Deposits.
- Parent: 1.5% of Banks Deposits
- Subsidiary 1: 1.5% of Banks Deposits
- Subsidiary 2+: 0.5%-1.0% of Banks Deposits
- Combined Companies: 10%-20% Deposits
o Or Simply Parent Company Deposit Cap 2.5%-3.0% of Bank Deposits. Subsidiary Deposit Cap 0.5%-1% of Banks Deposits. Global Cap for controlled companies of ~10%-20% of Banks Deposits.
o Either of these would make it so that you would require a significant number of subsidiaries to gain substantial portion of an individual bank’s deposits with an overall limit.
o A bank should have liquid investment reserves worth 10%-20% of deposits in bonds and short term notes that they could sell if depositors withdraw their money.

•Does anyone else have any ideas for a solution to this problem?

Another thing to think about is possibly having an alternative place for companies and individuals to park their cash for protection of principle, liquidity and to earn some interest. In the real world it is normal for large organizations or wealth individuals that have money that exceed deposit limits to park the majority of their cash in the money market otherwise known as short term high quality short notes, bills, and commercial paper that mature in less than a year issued by governments and companies. For example, one of the organizations that I have worked for keeps $100-$300 million in cash/bank accounts and the rest of the $3+ Billion Treasury in high quality money market instruments.

Potential Money Market Systems:

•Money Market Facilitated by Bank:
o Separate “Deposit” account that is not linked to other bank deposits where Bank “Purchases” High Quality Government Bills, Commercial Paper, etc. for you and charges you a percentage of the interest for the service.
o Interest: 50%-75% of Bank Savings Account rate or 2%-4% Yield/Interest
o Management/Service Fee: 0.25%-0.35% Assets

• Separate Money Market like the Stock and Bond Markets:
o Investments:
- Maturity: 3 or 6 Months
- Yield/Interest is Based on discount to Par Value so you buy investment for say $98 and they pay you $100 when it matures.
o Investments Options:
- National Government Bills: National Government Debt Market: ~40%-100% of Nations GDP (~20%-30% Short Term Bills)
- City Notes (Tax Revenue Anticipation Notes): Market: 5%-10% of City Annual Budget, Simulate the mismatches in tax revenue and expenses?
- Commercial Paper: Have “Local” firms issue them. Possibly allow companies to issue commercial paper to fund short term borrowing needs like paying bond interest payments (6 months), periods with cash flow issues, etc.

[David]

Thanks for your suggestions. I will forward them to the dev team.