I agree on all points, what I am trying to get across are ways to go about doing this. In short my observations are as follows:
1) The banking system is fundamentally unsound as it promises withdrawal of funds at any time, but backs this promise by assets that pay dividends over time. The financial instruments (bank accounts) should reflect this reality.
2) Therefore the banks should present customers with tradable bonds issued by the bank rather than accounts which can be emptied at any time. Ordinarily these bonds would trade as risk free bonds, and thus fetch a fixed price rising at the rate of interest as the maturity date approached.
3) In the event that the bank should crash, you will now be left with an orderly bond market of slightly higher risk bonds, which can still be traded. Losses that cut past the equity of the bank and into the deposits would affect the deposits like a worsening economy affects the stock market. Prices would adjust to reflect expected yield, and there wouldn’t be a musical chairs style rush to the bank.
Think of it as an alternate way of handling bank bankruptsies. And it even works before the bank is bankrupt, by allowing risk averse depositors to sell out at loss to less risk averse investors.
This beats the ‘last man to the bank pays the bill’ game that the current system produces.
Again, this is not an attempt to prop up failed banks (I have no idea why people here seem to think that’s what I’m about), it is an attempt to fix the way they fail so it happens in an orderly fasion, allocating losses without the need for drawn out bankruptsy proceedings.
Banks already have trade able bonds, they call them CD’s.
The reason banks are failing has nothing, zip, zero, nada to do with people withdrawing money from the banks. The sole reason banks are failing is that they made bad loans. They have a lot of excuses for why they made those bad loans, but that is the bottom line. Banks have more debt than assets, they are broke and the only reason they are still in business is that the Fed has been lending them gobs and gobs of money, which they are now lending to the government.