Besides what was mentioned earlier, the bill also stipulates that starting from January 1st next year, savings banks participating in the Federal Deposit Insurance Program can offer customers a brand new ATS account.
The ATS account, also known as an Automatic Transfer Service account, is not so much a new account as it is an upgrade to the existing three types of accounts. As mentioned earlier, under the provisions of the 1933 Glass-Steagall Act, savings banks were not allowed to pay interest on deposit accounts such as checking accounts. Interest was only permitted on short-term and long-term deposit accounts.
But the ATS account is interesting because it breaks down the barriers between checking accounts and short-term deposit accounts. This means that money can automatically transfer back and forth between these two accounts.
When customers need money, the corresponding amount will automatically transfer from the current account to the checking account for payment. Any excess funds in the checking account will also automatically transfer to the current account, where they will accumulate and earn interest.
In essence, this is similar to current accounts in the future domestic market. You can use the money when you need it and let it sit and earn interest when you don't!
From the allowance of opening ATS accounts to the practice of lifting the cap on deposit interest rates, Carter sensed a deliberate intention by the federal government to increase the savings capacity of savings banks.
Looking at the relaxation of business operation regulations, such as the abolition or raising of the cap on interest rates for various loans like single-family home loans and home improvement loans, and even allowing savings banks to engage in commercial investment activities not exceeding 20% of their own assets.
These measures to expand the scope of savings bank operations seem to be trying to find ways to quickly spend the newly absorbed funds by savings banks.
If increasing savings capacity is to coordinate with the Federal Reserve's monetary tightening, then this increase in business operations...
Is it like pouring water while also letting water in? Is this a primary school math problem?!
"The folks in Washington seem to want to send us to our deaths while fearing we'll die too quickly. If you think about it..."
Similarly, Goodman, who read the end of the bill with Carter, felt a thunderous shock in his mind. He reached for the cigarettes on Carter's desk, hands trembling as he lit one, sighing:
"Greatly increasing our savings capacity while limiting our operating capacity. Washington is really playing a shrewd game here! Helping them tighten the money supply and then letting us self-destruct."
"Are you saying that lifting the cap on deposit interest rates is to make us banks compete with each other, raising deposit interest rates to attract people to deposit their excess money in banks, reducing circulation in the market? Then restricting the channels through which we can profit from this money, forcing most of the cash to stay in our hands."
Goodman's words were like a beacon in the darkness, quickly helping Carter understand the logic behind them.
Exactly!
With the gradual removal of the cap on deposit interest rates, theoretically, as long as a bank has sufficient funds and is not afraid of losing money, its savings capacity will increase almost infinitely! Using an extreme example, if I offer a deposit interest rate of 100% per year, ignoring issues like trust, almost no one would refuse to deposit money in their bank.
But after absorbing a large amount of deposits, where do I spend it? Traditionally, the amount of deposits a bank can attract and lend out is basically balanced. There are only so many people in one place, and there are only so many houses for mortgage loans.
At this point, if a large amount of deposits is taken in, it's certain that not all of it can be lent out for mortgage loans. So, by allowing licenses for other business operations, increasing some banks' profitability to ensure survival, but not fully allowing it, it means that most of the cash deposits will still be held by banks.
"Exactly, especially when surrounding competitors raise deposit rates to attract depositors. It's not just a matter of a bank refusing to raise deposit rates anymore."
"As long as the interest rates offered by others are significantly higher, it's obvious where depositors will choose to deposit their money. Even to prevent the outflow of funds from their own bank, even if the funds absorbed cannot be spent, many banks will have to reluctantly raise deposit rates and hoard large amounts of money. Just waiting for the day when they can't bear it anymore, and that bomb will explode!"
Ruthless! Truly ruthless!
The once fragrant and delicious cigarettes now tasted bitterly to Goodman. It seemed that since last year, Carter had been saying he firmly believed that the decade-long high inflation would inevitably be curbed during this period.
Back then, Goodman was skeptical, but now he believed it wholeheartedly!
This move was a naked conspiracy! When the first bank with ample assets and ambitions starts raising deposit interest rates, Pandora's box will be opened.
The other banks, just to survive, will have to follow suit. They will attract deposits by raising interest rates, but won't be able to spend them, and eventually will be unable to afford the high interest, leading to a decrease in capital until bankruptcy.
But if they don't raise deposit interest rates, then their current deposits will decrease significantly, directly leading to financial bankruptcy!
It's a choice between dying sooner or later. In the real world, though some might say "better to die early and be done with it," in reality, "to cling to life as long as possible" is the choice for most people. Perhaps by dragging it out, there might still be a chance of a turnaround?
Goodman believed that if he could see this problem, there must be others in the banking industry who could see it too. But seeing it and acting on it are two different things.
Like Pandora's box in the story, even though one knows it shouldn't be opened, there's always someone who can't resist opening it! Most demons, in fact, stem from human nature.
Besides pinning hope on others' prayers or hoping for an unspoken agreement among banks to maintain unchanged deposit rates, it's clearly absurd. But apart from these hopes, the only solution Goodman could think of was...
A showdown of big capital!
To confront this crisis with sufficient reserves!
Raising deposit interest rates and absorbing large amounts of savings will only result in everyone losing money. Then it's about who has a stronger foundation, who can hold out longer!
After some banks collapse and others are left barely standing, people will start to calm down. Only then can they sit down and negotiate a deposit rate that everyone can accept, reducing unfair competition and internal consumption.
Speaking of capital, Goodman's eyes naturally turned to Carter:
"Carter, about your company, HT."
"The progress of this matter has already begun, it's not something we can just stop now! The sunk costs are too high, I can't bear to give up!"
Rubbing his temples, also aware of the crisis, Carter naturally thought of HT. This cash-consuming behemoth...
Amidst his worries, Carter couldn't help but feel fortunate. He was glad he didn't choose the nationwide expansion plan initially. If he had gone with that plan, the rate at which his cash reserves decreased would have increased by at least 50%!
"Sigh, I understand you. A company that's invested tens of millions upfront, to stop now... How about we give up on the bank? We could focus solely on that catering company in the future. I could go learn from Mr. Genas, or maybe I could go undercover at McDonald's, attend their Hamburger University, and then come back."