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Opinion - user-operated banks

Tateru Nino
01.11.08
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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:

  1. Fraud (Ponzi schemes for example)
  2. Misdealing (arbitrary or aggressive seizure or cancellation of assets)
  3. Incompetence (because even though you may have the best of intentions as a bank operator, you may completely screw things up)
  4. 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.

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