Securitization fix

I don't understand why banks don't have non-FDIC insured accounts that they offer (at higher rates) for people who want to really invest in typical borrowers. Maybe that is what money market accounts do.

It would be easier than investing in the stock market. It might give bank customers somewhat more impetus to pay their loans/credit cards/mortgages on time. It could help people understand finances (which is why banks will hate it...they get better profits through ignorance). Most importantly, by having the accounts not FDIC insured it reduces the need and size of the securities market by essentially internalizing a portion of it.

One of the big reasons people invest outside of banks is because banks tend to pay a crappy return, which is partly because they are greedy, partly because they have to offset the statistical uncertainty (standard accounts allow depositors to take and put in money with little to no charge whenever and in whatever quantities they chose, and also most accounts are designed to not ever have losses so the bank has to reduce payouts to offset the fact that some accounts won't be paid) and partly because they have overhead and FDIC insurance. By offering these accounts banks can pass on some losses, not have to pay as much to maintain (no FDIC) and can penalize early withdrawal or charge for any transaction, like with other investing.

So an auto loan account would pay out, say 75% of the return on auto loans outstanding that the bank has. If the bank is taking in an average of 8% the account would pay 6%. The risk here would be low to moderate. Credit card accounts would carry higher risk, but could see return rates >10%.