What is a bank?

I spent most of my working life working for a bank-a real bank, not an S& L, not a credit union, and certainly not as a Wall Street investment banker, all of whom the media calls “Bankers.”

We financed business customers for accounts receivable, inventory,credit lines, and any other financing to keep our local manufactures, retailers, wholesalers, and all sorts of other enterprises going. We were “Community Bankers” in the truest sense. We financed church buildings, and even our local college with a line of credit when they needed it, usually just before tuition time. We financed the purchase and construction of homes, with tight controls of the builders. The money came from local depositors , both personal and business. We operated on the spread between the cost of funds, including expenses. Pretty simple.

Now we’ll make it a little bit more complicated. Most bankers kept a large amount of their deposits in reserves, (Liquidity) in cash equivalents in correspondent banks, and in required reserves in the Federal Reserve Bank(FED). For liquidity, they could borrow from these same sources, usually overnight only. Borrowing from the FED was the most difficult, and it became known as, “The bank of last resort,” and the overnight loans had to be secured, mostly by U.S. Government bonds…Most bankers would far rather be a lender than a borrower, or using another common term, we would rather sell fed funds, than to buy fed funds, but both sources were readily available to almost every bank. There were always a few incompetents running banks, but they were generally weeded out by good competition and the regulators.

Some money had to be left over for the “Bond account” which was generally composed of U.S. government and government agency bonds along with some municipal bonds, which represented investment in city, county, school districts, sewer districts, higher education facilities, and a long list of what were considered “Munis.” The interest on these bonds was generally free from taxes. helped the issuers provide for public need, and were considered a good investment for banks, although the bank purchaser was expected to check the credit of muni borrowers.

The system worked pretty well until all sorts of promoters, hustlers, and many without morals or reputation figured out how to get in the business, and even were able, through lobbyists, get the government to help them get to where the money was-in banks!

They started out like the famous small bank in Oklahoma City that loaned millions to oil promoters, drillers, and hustlers, and broke the bank! Before the bank was closed, it had become famous and legions of promoters either started, or bought up banks by the hundreds, which they promptly used to take unheard of risks, especially loans to their cohorts.

Next, the Savings and Loans, a previously well contained and well regulated business, were sought out for purchase by the same thieves, with the cooperation of the Federal government and congress who allowed abuses of the public trust almost beyond belief.

They were actually allowed to invest depositors money in their personal deals. They were allowed to issue, to their customers, debt securities on their own enterprises, and lead their investors to believe that they were protected by FDIC!

In the 80’s the whole thing blew up, and the public spent over 92 billion to straighten the mess out, and made a lot of unsavory people rich with the bargains they bought from the Resolution Trust Company (RTC) at few cents on the dollar, held them and sold them for enormous profit!

And the press called them bankers! These people were a lot of things, but they weren’t bankers.