Opinion - user-operated banks
by Tateru Nino 
Jan 11th 2008 at 11:00AM
Filed under: EVE Online, Economy, Opinion, Second Life, Legal
In the wake of Linden Lab's ban on unregistered Second Life banks, we may as well go out on a limb a little and present an opinion on the situation - and potentially unpopular one at that.
If you want the short, short version, it goes 'WTF'. Everyone else, grab a coffee.
Almost (but not quite) every legal jurisdiction has regulations, rules, and laws that control banking, organizations that appear to be banks (but are not), and organizations that are neither banks nor appear to be banks but provide products or services that are similar to those of banks, whether those organizations operate in bricks-and-mortar establishments, on the web, in a tent, or pretty much anywhere.
These regulations have been developed in response to a short list of practices:
- Fraud (Ponzi schemes for example)
- Misdealing (arbitrary or aggressive seizure or cancellation of assets)
- Incompetence (because even though you may have the best of intentions as a bank operator, you may completely screw things up)
- Requirements of a particular set of religious tenets in jurisdictions where there is no separation of Church and State.
The regulations exist to prevent or mitigate these basic issues. Despite the existence and almost universal applicability of these regulations, organizations still appear with some regularity that do not comply with these, and most governments take regular action against them when they come to light - alas, it is usually not before optimistic depositors have lost funds unrecoverably.
We are not presently aware of any bank operating in Second Life that provides basic interest-bearing accounts to residents who are registered in compliance with their local laws where the organization is situated.
That is not to say that the operators are criminals - only that they are not complying with laws and regulations intended and enacted to protect you, the depositor. Take just a moment to think about that.
If you chose to put your funds into an EVE Online player-run bank (largest bank disaster there that we are aware of, $119K USD) or a Second Life user-run bank ($700,000 USD lost in one), we really have to ask "WTF?"
That's like loaning your car to someone without a driver's license isn't it? You're just taking their word for it without any independent verification.
We suppose that as a bank operator you can tell people why you think the banking regulations of your local jurisdiction shouldn't apply to you, or simply pretend that they don't exist.
As one operator (who wishes to remain nameless) told me yesterday "They're too expensive. We shouldn't have to follow them."
Most of the user-run banks are basically claiming to take your money out of the world, into US Dollars and then do something with it that generates interest, then bring it back.
You can do this yourself, as it happens, and get 4.61% - try a Paypal interest-bearing account - guaranteed and compliant with regulations, or go with ING or a similar institution that's easy to access online (My own bank pays 7.71% p.a. on two month deposits and that can all be done online).
You don't have to pay someone else to do it for you, and the money is as safe as it would be in any bank. Of course the interest isn't as high as most of the user-run banks promise - but then, there's been a lot more promising than delivering when push comes to shove.
Of course, if you want to gamble with your money, we hear Vegas is a lot of fun. After all, there's a gambling ban in Second Life - plus you might run into Elvis, flipping burgers.
Reader Comments (Page 1 of 1)
Aki Shichiroji said on 12:15PM 1-11-2008
Personally I never saw much point in giving money to an ungoverned party to 'hold' and 'gain interest' on. I wouldn't trust anyone to it in RL and sure as hell wouldn't trust anyone in SL to do it either.
As such, this ban doesn't really effect me much except in terms of the search for land, which may or may not change depending on whether these companies just *stop* investing in land or continue under other pretenses (in which case they may find their customer base rather unhappy with them when they cannot liquidate their assets in an appropriate amount of time).
Given that some 'investment' companies have interests in land within SL, how do you think this will affect the land market?
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Ordinal Malaprop said on 3:18PM 1-11-2008
One could put one's money into a high-interest account, or give it to some sort of more risky investment firm to handle (there seem to be an increasing number, at least in this country, willing to deal with relatively small initial funds, but they are of course all regulated in some way). One could put it into the stock market oneself if one was so inclined.
I don't really think that the lack of options is what is motivating people to place money with these folk, and then defend them until the boat has well and truly sailed (and sometimes even after that). I am not sure quite _what_ it is to be honest, but I'm sure that there are plenty of studies about investment scams over the centuries; they don't seem to be becoming less popular.
The only thing that I might be able to add to those is to speculate what about SL might contribute. A factor may be that people are not infrequently attracted by promises of big money (not entirely unrelated to LL press) and at least, by the idea that it is a "money game". They enter and see the banks and think "oh yes, this is part of the game". They are used to banking regulations without even thinking about them, and assume that nobody would be allowed to get away with making promises they can't keep and then defaulting. Surely not! They're in the game, they must be part of the game! Just like new residents often assume that people with a tag saying "Police" _are_ actually some sort of SL police force.
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Ordinal Malaprop said on 3:22PM 1-11-2008
One could put one's money into a high-interest account, or give it to some sort of more risky investment firm to handle (there seem to be an increasing number, at least in this country, willing to deal with relatively small initial funds, but they are of course all regulated in some way). One could put it into the stock market oneself if one was so inclined.
I don't really think that the lack of options is what is motivating people to place money with these folk, and then defend them until the boat has well and truly sailed (and sometimes even after that). I am not sure quite _what_ it is to be honest, but I'm sure that there are plenty of studies about investment scams over the centuries; they don't seem to be becoming less popular.
The only thing that I might be able to add to those is to speculate what about SL might contribute. A factor may be that people are not infrequently attracted by promises of big money (not entirely unrelated to LL press) and at least, by the idea that it is a "money game". They enter and see the banks and think "oh yes, this is part of the game". They are used to banking regulations without even thinking about them, and assume that nobody would be allowed to get away with making promises they can't keep and then defaulting. Surely not! They're in the game, they must be part of the game! Just like new residents often assume that people with a tag saying "Police" _are_ actually some sort of SL police force.
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TigroSpottystripes Katsu said on 8:26PM 1-11-2008
I trust the "bank" that I used to have money in in SL, I only withdrawed it all in case for some reason, by the time the ban started something would make it hard for me to get my money back.
it didn't had the absurd interest rates most banks in SL have, that, combined with advice from smart people aswell as how long it has been out there, the scale of the company and other stuff like that, made me confident that it should be trusted, and if ater the 22 they manage to get back on busyness, I'll put my money in it, regardless of my trust on whichever regulatory agency that allowed them to continue
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Adz Childs said on 8:30PM 1-11-2008
ordinal i was looking forward to reading three nice long comments by you..... they're all the same tho. hahah.
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Tateru Nino said on 11:50PM 1-11-2008
I don't think land will be considerably affected by it. I don't think there was all that much land-flipping-for-profit as an interest model for banks.
Linden Lab is likely to take a bit of a revenue hit, though - assuming the user-run banks were doing with the funds what they claimed to be doing.
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