> because default rates would so much lower than average that they could give awesome rates.

That assumption should be questioned.

First off, most if not all new ventures lose money.

Second, if you are giving away free money you will attract scam artists.

Third, do normal banks consider engineers to be a better credit risk than say lawyers?

I envision a YC like diligence process. More intensive than normal loans. But people do it for the low rates.

So you'd just be doing what these folks are, but with (hopefully) a more lucrative sub-population?

http://join.lendingclub.com/borrowing.php?ppc=60209

I don't think you can make loans if you have 100% reserve. No?

bank loans do not come from deposits. I don't why this myth is so persistent. http://en.wikipedia.org/wiki/Fractional-reserve_banking#Mone...

Bank loans (among other things) certainly do come from deposits. In fact, it says so right on the page you linked:

"Banks borrow funds from their depositors (those with savings) and in turn lend those funds to the banks’ borrowers (those in need of funds)."

you're quoting something that the federal reserve puts out as an explanation of FRB. it is clear from the rest of that paragraph that they are speaking in loose terms meant to make things simple.

read the paragraph on checkbook money. loans create money.

If the bank only lets you withdraw at certain times then yes, they could loan out your money during times you have agreed to. But no loans could be made from a savings account in its current form with a 100% reserve requirement.

Why mix-in the 100% reserve idea?

fractional reserve banking makes the assumption that you can predict what the loan market will look like if you need to sell off any assets. relying on your ability to predict the future is not sound finance.

How is something universally practiced (as is fractional reserver banking) not sound finance?

The current crisis was not brought on by retail/commercial banks. It was caused by investment banks using way to much leverage, and trading complex financial instruments that where the risk was poorly understood.

fallacy of the appeal to the majority. the current bank crisis was caused by alan greenspan's credit bubbles. the first one causes the dot com boom, the second caused the housing boom and was used to cover up the first.

OK. Though I liked explicit term-deposits better (and they would also work with that idea).