MURDER, POLITICS, AND THE END OF THE JAZZ AGE
by Michael Wolraich
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The Best Way to Save Banking Is to Kill It
By EmmaZahn on Wed, 03/27/2013 - 12:42pm |
In a previous post, I explained that banks are inherently fragile. One way to make them more robust is to increase equity capital requirements. This is the remedy advocated by Bloomberg View's editors. The banks call it radical but it's really pretty moderate, because it leaves the basic structure of banking alone. The same is true of calls to make the banks smaller. Smaller banks are still banks.
A genuinely radical approach would be to kill banking as we know it. Rip all banks, large or small, in two -- separate deposit-taking from credit-creation. Back the deposits one-for-one with reserves at the central bank. Then fund loans not with deposits or other money-like liabilities but by tapping investors who understand they've put their savings at risk.
This approach, unfamiliar as it sounds, has a long and distinguished academic lineage. Luminaries such as Irving Fisher, Milton Friedman and James Tobin have all advocated it.
URL:
http://www.bloomberg.com/news/print/2013-03-27/the-best-way-to-save-banking-is-to-kill-it.html
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