Remember that little voice in the back of your head the first time you saw a Ginko Financial ATM or the WSE Boards?

Little Voice: “This is all going to end in tears…”

As for the OpenID plug-in, it is a known limitation of the plug-in I’ve got that it doesn’t deal with delegates properly. I have the same issue myself. Development has stopped in late 2006 or so, so I might try a different one instead. Sadly, my blog has gone through a lot of changes over the years, and keeping it up-to-date with the latest plug-ins is becoming more and more difficult, mostly because the theme I use is way out of date, requiring a lot of manual patching to add any further plug-ins…

I am all for having only RL regulated institutions acting as in-world banks so I am not bashing the ban. But LL also has to open the door to those institutions and give us some better options than the services that we are getting from the “LL bank”. Of course, that is based on the assumption that the SL economy is to be taken seriously, and sometimes LL indicates that they don’t think of it that way.

@Gwyneth : as a footnote to our own exchange and to Ashcroft’s arguments, and without being a legal expert, I would still presume that LL could very well ban all banking activity from SL, seeing that the ToS clearly stipulates the L$ is « play money » solely owned and controlled by LL. You can’t stop a regulated banking institution doing business in its RL country, as long as it complies to regulations (you are obviously right on that), but stopping it from doing banking in something that is the sole property of a single company, with money that is a virtual pseudo-money also owned solely by this company, hardly looks like a contendable proposition to me.

As for:

Indeed, the very fact that SecondLife banks are almost all investment and almost no loan itself is a cause for some suspicion: what are the bankers doing with the money, if not lending it, such that it can earn interest of 130% per annum (as is offered by BCX Bank, for instance)?

the answer is simple…

They’re buying Google shares

“But these “banks” have brought unique and substantial risks to Second Life, and we feel it’s our duty to step in. Offering unsustainably high interest rates, they are in most cases doomed to collapse – leaving upset “depositors” with nothing to show for their investments. As these activities grow, they become more likely to lead to destabilization of the virtual economy. At least as important, the legal and regulatory framework of these non-chartered, unregistered banks is unclear, i.e., what their duties are when they offer “interest” or “investments.”

There is no workable alternative. The so-called banks are not operated, overseen or insured by Linden Lab, nor can we predict which will fail or when. And Linden Lab isn’t, and can’t start acting as, a banking regulator.“.

Reference is made to the law, but no suggestion is made that Linden Lab itself is under any duty to prohibit banking operations in the way that it is with gambling: the references to the law are references to the fact that the customers of these banks may have very little legal protection. It would be very surprising if Linden Lab truthfully cited legal requirement as the reason for the gambling ban, but, although it is in fact compelled by law to prohibit unlicenced banking, it pretended that the reason that it was so prohibiting was to protect its residents from fraud. It would also be odd if Linden Lab, believing itself to be legally obliged to prohibit all banking operations, nonetheless gave the banks a grace period before it closed them down: it did not do that with gambling, either. As Gwyneth pointed out in her article, if the law requires one to do something, it requires one to do something right now, not in a fortnight.

So, whatever the real position in respect of financial services law, the likelihood is that concerns for its own legal liability are not high on the list of reasons for prohibiting in-world banking.

Elouise’s reason also does not make a great deal of sense to me: the suggestion is, if I understand it, that, because banks in SecondLife might offer credit to people starting their own businesses, etc., then people would borrow money rather than purchase it through the LindeX, thereby reducing Linden Lab’s profit on LindeX sales. However, Linden Lab has not prohibited moneylenders (which are also regulated, at least in the UK, albeit not quite as strictly as banks, or “deposit-taking” businesses, as the legislation refers to them), but in-world deposit-taking. In real life banks, of course, the loans are paid out of investors’ money; in SecondLife, it is undoubtedly cheaper, by a considerable margin, to buy money on the LindeX (or other exchange) than it is to set up and run a bank, including website, etc., as well as pay the interest at a competitive rate on everybody’s deposits. If, therefore, one’s business model is to make money by offering loans, one’s business will be far more profitable if one is a straight money-lender without all the panoply and expense required for taking in-world deposits, operating ATMs, paying interest, attracting investors, etc.. Indeed, similarly for anybody seeking credit, it is cheaper to convert first-life currency into L$ on the LindeX than it is to pay interest, perhaps for a lengthy period, on a loan.

No doubt, that is why SecondLife banks focus far more heavily on savings and investments than they do on loans: there is far more of a market of people with Linden dollars to spare wanting to make money for nothing by investing it than there are people so poor that they can’t afford a few thousand Linden dollars, but who know that, if they invest those few thousand Linden dollars into an in-world business, they will be able to make enough money in that in-world business to repay the loan and interest within a reasonable period of time and have a profit left over.

Indeed, the very fact that SecondLife banks are almost all investment and almost no loan itself is a cause for some suspicion: what are the bankers doing with the money, if not lending it, such that it can earn interest of 130% per annum (as is offered by BCX Bank, for instance)?

Moreover, investment by itself does nothing to lessen the demand for the LindeX: that there is money sitting in in-world bank accounts that people have paid a commission to purchase that the bankers might well be paying a further commission to sell, if anything, increases L$ churn, and therefore the LindeX’s profits. If Linden Lab wants to eliminate the competition, therefore, the thing to prohibit would be the loaning money, not taking deposits, not to mention the existence of rival exchanges, which also operate from ATM points in-world and, because they simply exchange currencies and do not offer a return on investment, will continue to be able to provide those services.

The rather mundane and un-news/rantworthy most probable explanation for the prohibition is simply that the presence of a large number of institutions many of which, as far as Linden Lab can tell, exist only to perpetrate frauds causes serious disruption and upset to residents of SecondLife, and the failure of one of these institutions potentially harms the whole SecondLife economy to such an extent that further such incidents might adversely affect the popularity/economic stability of SecondLife as a whole.

Those who heard Robin Linden speak at the recent Metanomics event will recall that she said that Linden Lab’s policy has always been not to act in resident to resident disputes generally, but always to act where it believes that residents are perpetrating frauds on other residents, because of the harm that those frauds can cause to the popularity of the platform and the SecondLife economy. As Linden Lab sees it, the only way that it can effectively prevent all the fraudulent banks is by prohibiting all banking, since it has not the resources to tell the fraudulent from the genuine, and it probably does not believe that there is any demand for real internal banking services that operate in the way that first-life financial institutions do in any event.

As I have written elsewhere, this approach is an horrendously blunt instrument, and it is a very great pity that there does not yet exist some internal regulatory framework, independent of SecondLife, that is able to tell which, if any, banks in SecondLife are fraudulent and which genuine: see the comment linked above for full details. Nevertheless, unfortunate (and possibly short-sighted) though it is, Linden Lab is highly probably telling the truth when it claims that the real reason for the policy is to protect residents from fraud.