Market Discussions

I was already to trash this thread because it's stupid, but I can't even get excited for bank threads any more. We need some fresh idiocy in here.

That's not completely true. Banks are a central source for loans and such, likely at a better rate then a random player in MD. The main thing lacking is an incentive to deposit isk, as our money stays safe from everything but our own stupidity.

not empty quoting

edit:
too lazy to write exactly the same post again.
there you go: http://www.eve-search.com/thread/1397748/author/Mme%20Pinkerton#1

Maybe LadyofWrath can give us an update on the fate of ECR?

Running a bank is actually viable, given certain restrictions aimed at preventing catastrophic runs on deposits and whatnot. A ton of active trading wouldn't even be necessary. You use deposits to buy up stores of unspecified assets in a big market. Over time, these assets (this would probably work quite well for T2 modules) will tend to go up in value fairly reliably with ISK inflation. Not always, but most of the time. Either way, you're generally going to be able to sell them for more than you paid, unless you bought at the top of a price bubble (i.e. were not a good trader). You'd keep an eye on upward fluctuations and sell at those optimal points. Rinse and repeat with the same or new modules. This is not a process that you'd have to be babysitting 24/7, either.

The main problem is that not many people could be trusted to run this sort of business. That's the kicker. Another point is that there needs to be a sane policy in place, such that people can't just demand their money back instantly, but would need to wait maybe 2 weeks, as a standard, to get their cash back plus interest accrued.

The problem is that investment tends to be short-term in EVE, because the gaming experience, not being real life, tends to scale down our attention spans in equal measure. An investment that, in the real world, we'd be content to let sit for a year or two at least, an EVE player would want back in maybe 1 or 2 months. Any bank that had the average player pulling out the entirety of his/her deposits every 1 or 2 months and moving elsewhere in the real world would find that their business had transformed dramatically from what it once was, no? It would certainly be more prone to catastrophic failure if not handled with excess caution (thereby likely reducing interest payouts).

If I ran a bank, I'd probably give a predetermined percentage of total profit to the depositors and to myself, instead of an interest rate set in stone at the beginning. That's a difference from real world banking that I'd like to see play out more in the world of "MD investments." Payouts are typically paltry compared to the actual profit that can be generated by said investments. So a bank can be useful in EVE, but only if the culture of MD investments changes to make them actually worthwhile for depositors.

We used to have more share offerings (compared to fixed-rate bonds) but they have some fundamental problems:

If your business goes well, you (as the manager) would be better off with fixed-rate bonds/loans.
If your business doesn't go well, you might pay less in dividends - but your MD reputation will be destroyed by this underperformance unless it was already very strong to start with.

The business manager can't really win as long as his investors aren't content with substandard returns - and seeing how the general incentives set by issuing shares over taking out a loan point into the direction of poor performance they will be extremely wary of this.
As the business manager cannot issue negative dividends the problem is asymmetric for him - he can only win a capped amount (up to the bond interest rate) through poor performance but he can lose a potentially unlimited amount of his profits (interest through dividends minus bond interest rate) with poor performance.

As long as investors are happy to invest into fixed rate offerings usually the only reason to offer them a share of profits is to build confidence and impress them with your godlike trading abilities (paying out extreme dividends on relatively small investments) before migrating to a more sustainable fixed-rate model in future offerings.

If you have a very strong reputation that can suffer some bruises you can share the risk/reward of uncertain long-term ventures (be it titan BPO copying or long-term speculation) with your investors but for most of us one venture that fails to deliver on dividends would be a death sentence in MD. You can never prove that you did in fact put in your best effort to prevent business failure - in the public's eyes you will have been either lazy or have fudged your numbers (requirement for continued independent auditing is another issue with share offerings) to avoid paying dividends.

After reading this thread I thought about banks in EVE and came to the conclusion that I'd really like to see another one - though probably not the one discussed in this thread

From my point of view banks are special compared to other investment vehicles because

(a) their main business is term transformation (take on short-term liabilities and convert them into long-term assets)

(b) they issue currency that is treated on par with government issued currency.

A short explanation on point (b):
if I use my debit card to buy something I am not transferring any government-issued currency to the seller. I transfer a liability my bank has towards me to his bank, his bank transforms this into a liability my bank has towards his bank and a liability his bank has towards him and he can have the latter paid out in government-issued currency if he wants to - or he can use this claim to pay for something else just as I did..
What is pretty amazing that it makes (in almost all situations) no practical difference whether you pay in cash or with claims against some bank - the bank notes/electronic balances are not discounted compared to "real" money but treated as equal (to the point where most people never realize they aren't government-issued money).

Point (a) is relatively boring, causes a lot of issues for any single bank (no safety net in case of bank runs) but is probably essential.

Point (b) is really interesting:
A big nuisance for any OOG service that charges/uses ISK is handling the tellering (maybe that will change eventually with CREST but for the foreseeable future it is a big hurdle). Reliance on the API to handle deposits is also a nuisance for customers who have to wait up to an hour before their funds show up (blink's preauth service is a testament to this).
A bank which offers an interface for 3rd party services to use the bank-issued currency could solve a lot of these issues and usher in a new age of eve-related e-commerce

Let's say I am a customer of Trustworthy Bank (TBANK), I have a savings account that accrues interest and a checking account which I use to send/receive "money".

When running missions I sometimes make use of a salvaging service - I contract them a bookmark of my wrecks, they
salvage the mission, put a record into their spreadsheet and then pay me (my share of the loot/salvage value) once per week. What if some poor grunt didn't have to make payouts for all customers once per week (with all the potential for errors, typos, ... that carries) but they could just have their spreadsheet credit the appropriate sum to my checking account automatically? They just send one big transaction per week to TBANK and their customers can put the account balance into their savings account, can ask to withdraw it from the bank or can use it to pay for other services.

Maybe I want to use the "ISK" (bank liability) my salvaging service sent me on some gambling site. Instead of sending ISK and waiting for an hour until it shows up on the gambling's sites balance, I just use my TBANK balance to buy chips instantly - no EVE API or manual processing, just an automatic order to move a balance from my TBANK account to the gambling site's TBANK account. And once I decide to cash out the gamblng site doesn't need any tellers of its own - they just credit my TBANK account.

Maybe I want to make sure that the coupon on that bond I took out on MD is always paid on time (even if I am on holidays and can't use the EVE client) - I just setup a standing order for TBANK to transfer a certain sum from my account to my investors' TBANK accounts (if they have one) or to their in-game characters (if they don't) - see how the division between ISK and account balances gets blurry? - and make sure my bank account is well-stocked before the monthly payout date comes around.

A well-functioning bank would be invaluable and ECR was absolutely right in the respect that the only way to start a bank these days is in very close cooperation with a popular gambling/lottery service.

(obviously none of the ideas in this post are new - ECR was going for the ti-in with EOH and a stockmarket and would probably have provided a public API if successful. I should probably have elaborated a little on how point (a) adds more liquidity to the investment market but I think that part is fairly obvious to anyone)