There are two ways the banking universe can pan out as far as I can see.
One is the Gorton way, where everything is eventually collateralised and anyone with credibility or collateral can issue collateral-type obligations that turn into collateral money.
In this world banks are as good as the collateral they hold, and they can flourish if they can persuade the markets to accept new types of collateral when old forms run out.
The other is the Admati view which is about going towards a Fisher style full reserve banking plan. Banks can take all the risk they want provided they can persuade “depositors” to fully fund them in these ventures and to bear all the risk.
I like Admati’s view but also see some benefits to Gorton’s — which basically represents a truly liberalised money market.Toward A Leisure Society
The Notgeld Issue
Izabella Kaminska
