> Do you seriously not see that this doesn't make any sense? Why would a criminal bank executive who's willing to run away with the bank's money care about the damage being done to the bank's reputation? They don't have any issue with stealing money from the bank but somehow they wouldn't want to damage its reputation?

The executives and shareholders have the incentives. Their incentives cause them to create mechanisms to incentivize and validate the people below them. Simple.

> I very much doubt that. It's clear that you don't understand incentives, and that you're unfamiliar with basic economic concepts such as the minimum efficient scale of a business. The notion that the amount of a bank's capital is the result of the bank wanting to maximise its reputation is not found in the scientific literature, nor it is supported by any economic theory, nor by common sense. Feel free to prove me wrong by providing a reference.

I'm certainly not going to provide you a reference as I value my privacy more than winning this argument. But it's true, whether or not you want to believe it.

Go ask anyone you know working in finance if they'd allocate $10mm to a manager with $1mm in assets. Go ask anyone running a hedge fund if they'd allocate $10bn to a brokerage managing only $1bn. Go ask anyone with a hundred million dollars to deposit if they'd deposit $50mm in a bank that only has $10mm in assets. This is no mystery. It's not some secret knowledge that only I possess. Anyone in a position to do these things has thought about these problems, and can and will tell you the same thing: hell no I wouldn't do that.

We can bring this back to a concrete level you've probably had experience with, if you like. Let's say you have a wealthy friend, worth a few tens of millions. And let's say you have another less well off friend, say someone that makes 20k/year. The three of you are walking around town, but both of your friends forgot their wallets at home. Your rich friend sees something expensive, say, $1000 he wants to buy. He asks you to spot him the money and he'll pay you back later. Your poor friend asks you the same thing. Who do you feel more comfortable lending to?

Deposits at banks are loans to that bank. Every lender on the face of the planet looks at the creditworthiness of their borrower. Creditworthiness comes from assets and income. The legal system matters too, of course. Interest rates will be lower under strong legal systems. The legal system is one of several parameters in the creditworthiness/interest rate function. The other parameters are assets, income, and reputation. If we think a little more abstractly, we can simply file 'reputation' under the 'assets' column.

Again, this is not a mystery. You just aren't used to thinking of your bank deposits as loans, because of the FDIC. But they absolutely are loans. Every time you deposit a paycheck you're lending your bank money. You are acting as a creditor, just not a very smart one. And you don't have to be smart, because the government has de-risked your loans for you, at least, until you hit the FDIC deposit insurance limit.

Read literally any credit valuation model from any finance textbook or Wikipedia. Every single one will ask "How big is your loan relative to the income and assets of your borrower?", without exception.

> That's because it doesn't have coercive power and therefore it can only do stuff that doesn't require coercive power, such as over-collateralised loans and voluntary exchanges, but this is just a tiny subset of finance. For example, under-collateralised loans, mortgages, bond indentures, basic enforcement of property rights, all that requires an authority with coercive power.

Great, we've already made progress then. A tiny subset of finance. That is more than nothing. You're well on your way to getting it.