Here's How We Can Break Up the Banks and Avoid Another Economic Disaster
(Bold added for emphasis)
Here's How We Can Break Up the Banks and Avoid Another Economic Disaster
By David Shirreff / Melville House Publishing April 2, 2016
We should think of the financial system as a utility, in the same way that we think of sewage systems and electricity distribution.
The following is an excerpt from the new book Break Up The Banks! by David Shirreff (Melville House, 2016):
We need a new model of banking (and to an extent a reworking of the entire financial system), so that it is less likely to need rescue by the taxpayer and is more likely to serve the real economy, not a narrow interest group.
It is understandable that, in the present economic climate, governments are reluctant to do more than tinker with the system for fear of incurring further costs—and the further wrath of the taxpayer.
But this is a blinkered, short-term view. We owe it to future generations to get it right, or more right, this time. This wouldn’t be unprecedented: after all, if Glass-Steagall had been kept in place, it can be argued that the world would not have gotten into such a mess over the last decade. This is the grand scale on which we need to be thinking.
Can we design a banking and financial system that won’t in turn be unpicked by future generations? I think we can...
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Universal banks, such as JPMorgan Chase, Barclays, and Deutsche Bank not only provide these one-stop-shop services to corporate clients. They also take retail deposits, and they have clients on the investment side that buy the securities that they issue for corporations. The retail deposits offer these universal banks a stability, and access to cheap money, that they would not otherwise enjoy. But for the retail depositor there is no obvious benefit in putting his deposits at risk with a bank that lends to big companies and deals in world markets. The depositor has no chance of sharing in the upside if the bank makes egregious profits. But he, or the taxpayer/deposit insurer, has a risk that the bank makes egregious losses. No one testifying to the Vickers Commission or the Liikanen group of high-level experts was able to volunteer a good reason why retail customers might benefit from putting deposits with a corporate and investment bank. It is only universal bankers themselves who talk of the stability that these deposits offer the bank (because they cross-subsidize other parts of their business).
~Snip~
David Shirreff is a former reporter for The Economist and the principal of the theater company Crunch Productions. He is the author of Break Up The Banks!
http://www.alternet.org/books/heres-how-we-can-break-banks-and-avoid-another-economic-disaster