Ideal Bank

Proverbs 22:7, "The rich ruleth over the poor, and the borrower is servant to the lender."

The Bible is fairly clear that debt is a bad idea. The Jews were allowed to loan money to each other, and even to take a deposit – but they could not charge interest. Only outsiders were to be a source of profit to the Jews. Proverbs teaches that giving to the poor is much better than lending to them; it is compared to lending to God, who will “repay” the generous man.

Proverbs 19:17, "He that hath pity upon the poor lendeth unto the LORD; and that which he hath given will he pay him again."

Luke 6:35, "But love ye your enemies, and do good, and lend, hoping for nothing again; and your reward shall be great, and ye shall be the children of the Highest: for he is kind unto the unthankful and to the evil."

With this in mind, I have chosen to be neither slave nor master, borrowing nor lending. I don’t have a credit card, bought my car with cash, and prepay my auto insurance every year. The most money I owe is paying my share of our family cell phone plan each month, and I try to never get even a day behind. As a result I have a no credit rating, but I defy an economy built on spending tomorrow’s dollar. Isn’t it rather foolish of them to base trust on the fact that people are NOT responsible enough to save money ahead of time?

I don’t want to lend money, either. But living in modern America, to have any sort of normal life one must have a bank. Banks are institutions that take my money and your money and loan it to others in order to profit from the interest. The banking crisis of 2008 was precipitated by a ratio of loans to interest received that was too disproportionate to maintain a profit. The expenses of banks were not being paid by the interest on loans because too many loans were “bad.” Payments were not being made. Banks can’t reinvest foreclosed property immediately. Their funds became tied up, invested in non-liquid assets. And this is not a bad thing except that they had been too greedy, and left insufficient cash in hand to meet the demands of their customers. Some of their customers were the depositors, some the borrowers (small businesses were a big concern; apparently they function on future dollars almost exclusively), and many bank clients are paradoxically both. That this is bad for the economy as a whole is becoming more and more evident.

The practice of profiting from loans (associated with shady characters for centuries) to people in need is hurting individuals as well. Obviously to give an interest-free loan, or even a “hand up” gift in hard times would be much preferable financially. Traditionally this would be done relationally, by capable friends who would be able to assess the legitimacy of the need and the efficacy of the gift. To those not in need loans ought to be less available. Politically and economically the Levitical law on charging interest to foreigners corresponded to the idea of duties (benefiting the people directly, rather than the government). To participate in the God -directed and –blessed economy of Israel, a Gentile could borrow money from a Jew, but the Jew was allowed to charge him for this privilege, taking the form of interest. (This is as covered in the law; it is plausible that Jews could charge other things like duties or rent for market space.) I suppose that business loans resemble this category, but it is not sound business to rely so heavily on borrowed cash.

Here is where I would like to introduce the concept of investment. What is commonly considered investment today is more accurately called “speculation.” It is a risk, calculated or wild – a gamble. Either a bank is taking a risk on a loan, betting that the interest yield will be profitable and that the debtor will not take off with the money; or an individual or institution is throwing money into stocks hoping the value of the stocks will go up, and that they can sell at a higher price in the future. Investment is different. Investment relies on dividends for profit. Dividends are a share of the profits less than the total profits divided by all the “shares” of stockholders, so that some of the profits may be reinvested in the company for continuing productivity, like farmers not selling all of their produce, but saving some for seed and planting a portion of it the next season. Sound investing is to give (as in not expecting or requiring the money to be returned) a sum to a company that one believes will be making profits long enough that dividends will meet or exceed the amount of the investment. This happens over time.

Another type of investment is in assets, which ought to appreciate through supply and demand. This property ought to have inherent worth by reason of usefulness. A few common kinds of investment are land, houses, and gold. A person may also invest in a service, like education, which makes his skills greater and his labor more valuable. Investing this way does not always require the sale of the investment to profit. There can be “dividends” on this as well: rent money from rental property, use of a house or farmland, or application of the skills acquired through education.

I understand how the sale of stock arose, and how useful it is. I’m not opposed to that being an option. It should not, however, be the common practice of banks, investment companies, or sound long-term investors. There would be two reasons to sell stock: 1) You can no longer afford the investment. Liquidity is more essential to you than long-term profit. 2) Your share in the company is losing value in a way that makes you think that no profit will ever proceed from it again. In this instance, to sell is to take advantage of another investor, profiting from selling them an asset worth nothing. Like loaning money or running a casino, it is preying on the risky ambitions of foolish men. It ought to be legal in a free market, but it is not moral.

All this to say that the ideal bank for me would be one that does not loan money, nor speculate in stocks. Picture a community of people. Many of them have money to spare, which they wish to store in a safe but accessible location. They get together and store their money in a bank. This bank is managed by a man who guards their cash and processes transactions: deposits, withdrawals, checks, debit cards, transfers. To pay for his services, the depositors allow him to use a portion of the total money in the bank to invest. At least a portion of the dividends, if not all of them, would pay for the building, the administrative fees, and the banker’s salary. The investments ought to be diverse, and published to the depositors for review. If there was sufficient concern that the investments were imprudent, the depositors could attempt to advise their banker or transfer their money to a more trusted banker. Depositors would understand that not all of their money would necessarily be available for withdrawal or transfer at once, but at a contractual set period after such a request is made. As always, more deposits are an insurance against a misjudged investment or a large withdrawal. If the investments are consistently successful enough, a bank may offer its own dividends to all of its clients, or to those whose deposits are large enough (this is done today through “interest-bearing” checking accounts).

This is slightly simplified. A larger bank would obviously employ more than one investment manager, for example. I don’t know all the laws involved. Many banks, I believe, were begun by one wealthy man (or a few partners) who put up his own money to ensure both initial liquidity and sufficient funds to participate in the market at a profitable level. In fact the whole idea is similar to a trust, in which multiple parties get together in order to make investments too large for their individual capital. (If I wanted to invest in gold, I am pretty sure the smallest portions I can buy in a portfolio situation are ounces, so if I don’t have enough extra cash to buy one ounce, I cannot invest in gold. But if my brother and I pool our investment money, we could afford the ounce and participate in that market.) Trusts are strictly regulated by contracts defining shares, inheritance, selling out, and management.

I don’t think owning stock in a company should be restricted to corporations or investment firms or banks, nor should it take an expert to understand the buying and selling of stocks. There is a place for the investment firm that lets investors manage their own portfolios as well as for an investment bank such as the one I describe. If a client is benefiting from the bank-like services of an investment firm, it is fair enough to let those employed by that company control the investments made, even if in the form of creating a list of acceptable investments or advising on investments (veto power), for the security of their business and thus the continued availability of the demanded services.

My idea here is not brand new. Think of what banks are called. You can still find some today called such and such “bank and trust,” or “investment bank.” I want a bank that does not loan money, and one that does not speculate in stocks. Do you know of any?

To God be all glory.