Thursday, June 6, 2019

Fixing Out-Of-Control Banking Systems? — Brian Romanchuk

This is just a short post-script to some points in the James Meadway article I discussed yesterday. What is to be done about financial sectors that are out-of-control, and endangering economic stability?...
I would add one important thing that MMT contirubtes to this debate that Brian doesn't mention here. Warren Mosler has pounded on the need to regulate banks' asset side rather than their liability side as is current practice.

Brian does mention that MMT economists have criticized current banking practice and have offered recommendations for reform based on Minsky. Warren, who formerly owned a small bank, has been out front on this with his recommendations, including proposals at his place.

Bond Economics
Fixing Out-Of-Control Banking Systems?
Brian Romanchuk


Brian Romanchuk said...

Added a link, thanks.

Ralph Musgrave said...

I’m not much impressed by the 2nd paragraph of Warren’s article entitled “Proposals for the Treasury, the Federal Reserve…”. He says, “U. S. banks are public/private partnerships, established for the public purpose of providing loans based on credit analysis. Supporting this type of lending on an ongoing, stable basis demands a source of funding that is not market dependent. Hence most of the world’s banking systems include some form of government deposit insurance, as well as a central bank standing by to loan to its member banks.”

So if lending is not government supported and is “market dependent” that lending collapses or something? Then how come corporations always managed to borrow trillions in the form of the bonds they’ve issued?

James Tobin opposed deposit insurance. Among other things it provides an entirely artificial boost for, or preference for money lenders (aka banks) as compared to other and sometimes very similar institutions, e.g. mutual funds. Banks should compete on equal terms with other financial entities. At the moment they do not: they are in receipt of a number of subsidies (e.g. TBTF) and deposit insurance.