new ideas in banking

for bank management class in MBA school we are to come up with new banking products.

the joke is, a credit card that can also be used as an ice scraper. Or a credit card that is jewelry. Like a touchless credit card but instead of on a keychain you wear it as a ring or dangle it as an earring or it is a comb in your hair.

Seriously, I have suggested that we set up a framework in which the bank securitizes loans and then manages the secondary market in those securities itself. Dr. Hays thinks there would be regularoty problems in passing risk to the bank's customers, even if they were fully informed of the risks at the time of purchase.

So that idea is sunk, although one of our team who works at UMB is going to discuss it with her coworkers. I am worried that I have gone and invented something big and I will get no credit for it, again.

The other idea I suggested this evening is a multi-level marketing scheme. Instead of offering a one-time bonus for bringing your friend into the bank and signing them up, as is offered at both central communications where they give you five dollars and bank of america where they give you fifty, the multilevel scheme would give you a piece of the interest earned on the money in the accounts held by the friends you sign up, and a smaller piece of the accounts held by the friends they sign up, and a smaller piece of the accounts held by the friends they sign up. Three levels.

The big thing with MLM systems is setting the prices.

The MLM savings account would have a high minimum balance to be participating to where you get residuals -- like, three thousand dollars -- and would earn
a floating rate tied to an alternate source of funds, such as the LIBOR or the COFI or something. So its a good demand deposit account with a high interest rate and a high minimum balance. Start with the cost of funds index, take ten percent of that for the bank that is offering the account, take ten percent for the first upstream participant, ten for the second, and ten for the third, leave 60% of the index as an interest payment for the depositor.

in the event that there are no upstream participants or that the upstream participants balances have fallen below the minimum, the bank does not need to pay those slices.

Google for "indexed deposit accounts" to see what is currently available in such kinds of accounts.

http://www.pacifictrustbank.com/products/IMMA.html
for instance the pacific trust bank is currently offering 4.5% interest on deposit accounts with a 25000 minimum balance. Sixty percent of that is 2.7% which is substantially higher than the
demand deposit interest rate offered
at central communications CU: http://www.centralcommunications.org/srates.html
although it is less than the offered rates for five year certificates of deposit.

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