Mr. Sprott and the asset management firm he founded, Sprott Inc. (SII-T6.97----%), are investing in an Ontario-based currency trading company known as Continental Currency Exchange Corp. They, along with the current management of Continental, are applying to federal regulators for permission to turn the 17-branch operation into the Continental Bank of Canada. They expect to get a decision early next year.
The bank Mr. Sprott and his partners envisage would seek to address all the things that Mr. Sprott has warned against in the global financial system, such as too much leverage and a lack of confidence in paper currency.
Continental Bank would take deposits, but it would make no loans, unlike most current banks that are built on a model of lending out far more money than they actually have on hand.
Taking it a step further, customers who don’t trust government-issued currency may some day be able to keep their deposits in the form of gold and other precious metals that they could tap for everyday purchases. That idea is in keeping with Mr. Sprott’s musings about chequing accounts backed by precious metals – customers could deposit gold, then make purchases by cheque and have their accounts debited accordingly.
“Our firm, Sprott Inc., and Eric have taken a very committed view that the financial system requires a substantial reset,” Sprott Inc. chief executive officer Peter Grosskopf said in an interview. Given that, “Eric has always thought that offering consumers access to an unlevered bank is a good idea,” he said.
In a levered financial system, relatively small losses by banks on their loans and investments can push a bank close to collapse. This bank would have no leverage and instead would make money thanks to profit margins on services such as selling foreign exchange and precious metals.
“It’s the old commerce model of providing service instead of credit,” said Scott Penfound, vice-president of operations at Continental Currency.
Look out Smith Barney! There's going to be a new "make money the old fashioned way - earn it" king of the hill.