The Voice for Financial Reform in the USA Gets a Boost March 4, 2010 discusseconomics Uncategorized 3 comments [funnyordie id=f5a57185bd width=512 height=328] Share this:TwitterFacebookLike this:Like Loading...
Starting out as places that would guard your money, banks became the main source of credit creation. Increasingly, however, borrowers are turning to the financial markets and to non-savings institutions, such as credit-card companies and consumer-finance firms, when they need a loan. This is reducing the profitability of traditional bank lending and has led many banks to enter new areas of business, such as selling insurance policies and mutual funds. Increasingly, too, traditional banks are selling off parcels of their loans in the financial markets by a process called securitisation.
What the most efficient split is between bank lending and other sorts of lending is debatable. Economists argue endlessly about whether an economy such as the United States, in which firms rely more heavily on the equity and debt markets than on banks to fund their investment, is better than one such as, say, Germany, in which banks have traditionally been the main source of corporate finance.
I recently read about Lord Montagu Norman (1871-1950). He was a banker who had both his maternal grandfather and his paternal grandfather serve as Governors of the Bank of England. In 1912 he had a “nervous breakdown.”
When people of this class are stricken by guilt feelings while plotting world wars and economic depressions which will bring misery, suffering and death to millions of the world’s inhabitants, they sometimes have qualms. These qualms are jeered at by their peers as “a failure of nerve.” After a bout with their psychiatrists, they return to their work with renewed gusto, with no further digressions of pity for “the little people” who are to be their victims.
I propose a return to narrow banking, though with some changes. I illustrate my financial proposal in my article “A ‘Less Narrow’ Narrow Banking.”
The article URL is listed below