How can we improve the banking system? This was the question or topic of discussion at Bitcoin 2023, which was held in Miami. Speaking on the subject, Ram Ahluwalia, CEO of Lumida Wealth, said that there are three important tasks that both central banks and the Fed, in particular, can do to improve the banking system.
Introduce competition, capital, and innovation
Ram proposed that introducing competition could significantly improve the existing banking system. He mentioned that this could be achieved through the implementation of De Novo charters, which permit new banks with private capital to operate. As an example, he cited Custodia Bank by Caitlin Long in Wyoming, US.
A de novo charter is a bank charter granted to a new bank that is not formed from the acquisition or merger of an existing bank. It requires a strong management team, a sound business plan, sufficient capital, and compliance with all applicable laws and regulations. The advantages of a de novo charter include a clean slate and a competitive advantage in attracting new customers and investors.
The second and third ways he revealed were by introducing capital from outside and allowing innovation to flourish in the banking system. These can include “technology firms, private equity firms, venture capital firms, or entrepreneurs to own control or start banks.”
The Apple and Goldman Sachs scenario
Explaining further, he said that while it is illegal for Apple or Google to run or bail out a bank, the situation of banks being bailed out by other banks has negatively affected the industry with the presence of a “deposit drawdown.” It has led to banks looking for liquidity outside their industry as “the pool is getting smaller, and you need outside capital” and technology to salvage the circumstance.
He highlighted that the Apple Bank product that is integrated with Goldman Sachs shows how this can work effectively. Apple with a credit card customer base of over 150 million, is working “with Goldman Sachs to take in deposits.” The result is that Goldman Sachs is “the bank on the back end, and Apple runs the front end.”
Therefore, it is important to “add outside capital, competition, innovation, blockchain, and Bitcoin to strengthen, renew, and revitalize the banking system .” This will be good for the over 4000 American banks running on old, antiquated technology only available on weekdays instead of “cryptographically secure blockchain to manage assets.”
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