Thanks for clarifying.

I'd like to add that this is a good practice in the financial industry, and isn't a bad thing at all. It's consumer protection.

And, $500k is actually a pretty low figure for this type of 'bond'.

For example, in Australia I believe you would need a banking license (or a guarantor with a banking license) which requires a deposit of at least $40M in to an escrow account which is managed by the central bank.

there are no consumers and vendors.

there's only traders.

this protects the criminal banking industry by keeping people out. you think these monkey bankers can't afford $1 million?

this is market entry barriers and you paranoid idiots are letting them get away with it.

I'd like to say this should not be legislated, and people should choose who to do business with on their own. If they offer the government a bond to cover losses, then people might go to that business instead of some startup. OTOH, perhaps I don't care when all I'm investing in my "Silicon Valley Facespacecash" bank is $20.

Another reason to use alternative currencies...

The problem with the market judging is a bank is worth your money or not is that by the time everybody decides that bank X is going under it's probably too late to get your money out (e.g. a run on the bank). This is why we have the FDIC.

then use bitcoin. no money to get out it only takes a few minutes.

While we're at it, why have contract law? People should be able to figure out on their own who's likely to keep their word, and the market will punish those who break it.

An argument against specific, outrageously expensive regulations for an industry does not equate to an argument against contract law. Your argument is invalid.

That works in theory. But have YOU read all the fine print when opening an account with your bank? I haven't either -- everything we do is based on some common sense and trust. If we had to verify everything we did with everyone we did it, our way of life would end.

> But have YOU read all the fine print when opening an account with your bank?

Yes. Paraphrased:

Bank agent: “You'll also have to sign this.” (Hands over a sheet of paper.)

Me: “Let's see here… […] ‘comply with the Deposit Agreement and Disclosure’. I need to see a copy of the Deposit Agreement and Disclosure, please.”

Agent: “Of course.” (Hands over a booklet.)

Me: “All right. Well, you may have to wait a bit…” (Starts leafing through the booklet. Cut to analog clock, then to clock fifteen minutes later.)

It was the same thing with signing up for public storage. “… ‘agrees to the Privacy Policy, which is incorporated by reference’. I don't seem to have a copy of the Privacy Policy here.” “Here you go,” and another sheaf of paper appears.

Note that in these cases I'm still basing my interpretation on a lot of contextual and cultural information, because while the alternative of trying to get them to lock down all the definitions separately would be amusing, it would fail. In many cases, every one of the relevant providers is in a position to drop me, whereas I'm reliant on at least one of them accepting me, so the power balance is tipped heavily in their favor.

People choose who to bank with based on marketing and suitability of product.

No one chooses a bank based on their balance sheet.

Couldn't you buy insurance that covers the bond? Typically this is much less than a bonds face value.

You can get a surety bond [see 1817(c) of this law], which functions somewhat like insurance --- you pay percentage point premiums to keep the amount on file. This seems to be how most people handle licensing bonds.

It can be a bond or a cash payment, but either way, the money is locked up and not available to use for operations, or gone.

It will feature on your balance sheet as an asset, though.

Which, if true, only further demonstrates the nonsense that is modern accounting practice.

Huh? Why? It's your money. If you wind down your business and settle all your outstanding transactions --- which, if you're honest, you should be able to do --- the state hands it right back to you. Not only that, but you get to collect the interest on the money. It's a bond, not a fee. Why wouldn't it be listed among your assets? It's part of the liquidation value of your business!

it's part of preventing small fry from getting in.

you could easily base the bond on volume.

the more transactions you do the more you must put in bond.

this again perpetuates the unnecessary division between individual and institution.