Sunday, 22 July 2012

Bank of Dave

It's hard not to admire Dave Fishwick, the eponymous Dave in 'Bank of Dave' the TV series and "Bank on Dave" (aka Burnley Savings and Loans) the company that he founded to provide banking services to Burnley, Lancashire, England and the area, but which he wanted to be a bank.

In a Dave v Goliath struggle, the entrepreneur, plain-speaker and shooter from the hip takes on the might of banking law and the Financial Services Authority. He sort of wins out, because by the end of episode 2 of the TV series he is allowed to make loans and take deposits, though he must match them. In six months he makes a profit of £000s which he generously give to charity.

But is this all scaleable? He has to charge interest on his loans, even though he is careful about what he invests in. This is in part because he offers savers 5% pa (with a few sweeeners to early adopters). I think he was (is?) lending at around 8-9% pa.

Where does the money to pay interest come from? Other people - well yes, but where ultimately? Money supply has to increase so that there can be enough money in the system to pay back the interest. If it doesn't, mathematically some people have to go bust. (If it does, some people still do go bust, but not because of  shortfall in all money).

This is a big, big problem for money. The total utility of goods and services increases over time, so money should increase in supply in keeping with it. But how do you quantify it?

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