Peter Vandenabeele

I believe a significant cause of distrust in the current banking system is the lack of openness about the exact financial positions, withdrawals, cash reserves, other reserves etc. that banks actually have. Now that we are in the current situation, it may be best not to be too open about it to avoid panic at those banks that have severe liquidity problems, but in a more structural fashion, we might benefit seriously from a more open methodology in banking.

So, the idea was coming up of "open (source) banking", where all information that does not need to be kept confidential for reasons of privacy is stated openly. I believe it is possible to design a set of rules that will allow people to operate an bank that is fair and open. In first degree, such a bank will make less profit, because with all information open and with stricter rules on what it is allowed to do, it is in a weaker position to negotiate and leverage, but on the other hand, if it can inspire more trust to all its customers, shareholders, business partners and employees, that may become such a strong benefit that a significant amount of people would choose to work with such an open bank and in that case, we have a winner.

A second problem I see with the current banks is the lack of fairness in the false promise to all holders of a savings account that they can draw back all their money at once at any time (full liquidity), while most of that money is invested in long term loans, mostly to home owners, businesses and other types of long term loans. The bank hopes for a mass psychology effect where it will never occur that everyone draws back its money at the same time, but if that happens, it is clear that bank cannot fulfill it's implicit or explicit promise of full liquidity on all savings accounts.

The cynical effect of this is that in case of a "run on the bank", those that are first to draw back their money (those are the ones to ignite the run on the bank) get the advantage of still getting their money, while those being more "loyal" have the disadvantage that the money is up by the time they come to collect their money. So, "bad" behavior is encouraged and "good" behavior is punished.

Some basic rules that I could imagine are:

1. At all times, the general amount of credits, debits, withdrawals of the bank are publicly visible to all.
2. withdrawals from saving accounts are globally limited to certain levels per day and other stakeholders are informed of the global level of withdrawals over the day. The system must be designed so that in case of trouble, every savings account will get its fair share of the currently available liquidity. Exactly this fact that no one feels disadvantaged by queuing politely in line (in contrast to using elbows to be first), will avoid the panic where those that are first, still get some cash, while those that wait politely get nothing. The openness (rule #1) is a hard requirement for this to function.
3. I believe this should be some form of collective effort/investment of a large group of people and for that reason I would think of a rule that no single shareholder should ever get more than e.g. 1% or 2% of the shares. The shareholders then appoint directors, using regular company constructs. Transfer of shares should be free (like in a default Belgian NV), except a rule to avoid concentration of shares in one hand.
4. the open bank strives to make maximal profit, while sticking to a number of basic rules of openness and fairness that are enshrined in its bylaws.

I feel such concepts could make for a bank that is "open" (all non-personal info is public) and "fair" (the bank does not make promises (e.g. full liquidity) that it can impossibly honor in extreme cases). If you feel such a open and fair bank could be an interesting concept, I invite you to join the discussion. Maybe this has been tried before and failed?

Could it be such an appealing concept that we can earn better money with this concept than with the current (more secretive and deceptive) operational modes of banks? If not, we can better keep on buying stock of classic banks. If yes, I am open to further invest time in this idea of an open bank.