How could Banking work with minimal adjustments to current game mechanics?

At its core, a traditional Bank is a business that takes in money from Depositors and lends that money out to Borrowers in exchange for some collateral to cover the loan.  So thinking mortgages here.

The revenues of the Bank is the interest rate it charges the Borrowers and the costs are the interest rate it pays to Depositors and any loans it has made that go bad (the Borrower is unable to pay and so the loan is written off) less the collateral that becomes the property of the Bank.

Get the collateral right and the cost of loans going bad is very small to none at all.

How could this work with current game mechanics?

The current Contracting systems gets us almost there.

To make a loan i would want to give isk to a Borrower for a set number of days in return for Collateral.  If the Loan + Interest was repaid within x days then the Borrower gets the Collateral back.

That is a contract within a contract - see the example below.

All we need to be able to do is put contracts within contracts, and then we are there.  And more.

An example

Lets assume i was lending out 1 billion isk for 4 months and charging 100m interest.  And i chose to accept a Procurer Blueprint as Collateral (base value 1.4bn isk).

The way this would work is to create the contracts in reverse.

I would first create a contract to give the Borrower a Procurer Blueprint in exchange for 1.1bn isk with a time limit of 4 weeks.  So a sort of Courier Contract with no distance travelled.  But this contract would not be immediately given to the Borrower, it would be part of the next contract.

I would then create a contract to give the Borrower 1bn Isk and the above contract in exchange for an Procurer Blueprint.  So a simple exchange contract.

So, on day 1 the Borrower gets 1bn isk from me and a contract to pay me 1.1bn isk in exchange for the Procurer Blueprint, and i get a Procurer Blueprint .

The Borrower then has the option of paying me 1.1bn isk within 4 weeks and getting the Procurer Blueprint back or defaulting in which case i get the Procurer Blueprint.

I cant run off with the Blueprint because i have given a courier type contract to return it - so it will effectively be held in escrow.

This is an example of secured lending, like a mortgage.

How would the deposits work?

In the same way, the depositor gives me isk in exchange for some collateral and a contract from me to repay the isk + interest in exchange for the collateral within a certain time.

What is the underlying truth that makes this work?

The assumption here is that the Borrower and Bank have plenty of assets sitting around unused which they are willing to use as collateral and that the Bank has surplus isk available to fund any Depositors wanting isk back before new depositors come in.

In this situation, if things go wrong then assets start changing hands and the Depositors and / or Banks are left with lots of Collateral items rather than their isk + interest.

Where would this lead?

Get the ability to put contracts within contracts and you get the ability to have Futures and Options, and therefore the ability to go short items