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Banks As Form of Float


Shawn
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Ok hello Community !

 

I've been thinking of this for some time now and it has me curious so I just wanted to hear some of your opinions.

 

My question is why not use a bank in the same manner as how Buffett & Prem use insurance to invest in businesses ?

 

And assuming FDIC deposits are out the questions what are sources of capital Banks can also use ?

 

I'd like to hear the pros and cons of using a small bank as a form of float to invest in other businesses.

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This is doable, Andy Beal's Beal Bank is a good example of this. The disadvantage to using a bank-structure for float is going to come from the liabilities side as your deposits can walk easier, making your funding less sticky. Also, I may be incorrect, but I've heard that banks in the US are precluded from owning non-bank businesses.

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In theory doable, but extremely difficult, especially since 2008.  The reason is the regulators don't want to see any non-standard securities.  It's generally frowned on when banks own securities, I've heard numerous stories where the regulator has forced the bank to sell stock on the open market regardless of price because they don't want the risk.

 

If you want to own a bank to gain access to float to invest in debt then you have a fighting chance.  There are a few bond funds disguised as banks, although not many.

 

The last factor is the difficulty in gaining control of a bank.  If someone without formal banking experience tried to start a de novo bank the regulator would stop it, if that same person tried to purchase an existing bank the regulators would most likely stop it.  So to gain control you need to have years of executive experience in a bank.

 

Best of luck!

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