A future with fewer banks

Imagining a world without banks | Special report

5/6/2021 9:16:00 PM

As never before, the role of banks is under threat from new technology, capital markets and even the public sector

Imagining a world without banks | Special report

.The physical dominance of banks symbolises their importance. Most people interact with their banks for such mundane transactions as buying groceries. Companies pay their workers, suppliers and landlords through banks. Banks are also there for bigger decisions, such as buying a house or getting a student loan.

Joe Biden Is Confirming Judges Faster Than Decades Of Past Presidents Windows 11 is here: Everything you need to know Teamsters votes to support and fund Amazon workers

For almost as long as there has been money (whether cowrie shells, gold, banknotes or digital deposits),there have been institutions providing safe storage for it. And for as long as deposit-taking institutions have existed, their managers have realised how in normal times not all depositors will demand their money back at once. That means they do not have to keep cash on hand for every deposit—instead they can use the money to make loans. Thus bankers provide funding for private investment and earn interest for themselves. This was a marvel to classical economists. “We have entirely lost the idea that any undertaking likely to pay, and seen to be likely, can perish for want of money,” wrote Walter Bagehot, then editor of

The Economist, in his 1873 book “Lombard Street”. “Yet no idea was more familiar to our ancestors.”The “fractional reserves” that banks hold against their deposits have another effect, however: to make them inherently unstable institutions. The history of capitalism and of money is thus one of relentless economic enrichment, pockmarked by the scars of frequent bank runs and financial crises. headtopics.com

Much has changed about banking since Bagehot’s day. Then the biggest banks were in London; now they are in New York, Beijing and Tokyo. Technological change means nearly all payments are settled digitally, rather than with notes or cheques. The banks are also far bigger. The total assets of the world’s biggest 1,000 banks were worth some $128trn in 2020, dwarfing annual global gross product of $84.5trn.

And yet a world without banks is also visible on the horizon. As never before, their role is under threat from new technology, capital markets and even the public sector. Central bankers have seen tech giants develop quicker and easier payments systems that could pull transactions out of the banking system. They worry that digital payments may bring about the end of cash. Financial regulation and monetary policy have traditionally operated through banks. If this mechanism is lost, they may have to create digital central-bank money instead.

Because technology has disrupted so many industries, its impact on banking may seem like one more example of a stodgy, uncompetitive business made obsolete by slick tech firms. But money and banking aren’t like taxis or newspapers. They make up the interface between the state and the economy. “The deep architecture of the money-credit system, better known as banking, hasn’t changed since the 18th century, when Francis Baring began writing about the lender-of-last-resort,” says Sir Paul Tucker, formerly deputy governor of the Bank of England and now at Harvard. “Which means it has not, so far, depended on technology at all, because Francis Baring was writing about it with a quill pen.”

Now a new architecture is emerging that promises a reckoning. “Economic action cannot, at least in capitalist society, be explained without taking account of money, and practically all economic propositions are relative to themodus operandiof a given monetary system,” wrote Joseph Schumpeter in 1939. Yet it is possible to see a future in which banks play a smaller role, or even none at all, with digital money and deposits provided by central banks, financial transactions carried out by tech firms and capital markets providing credit. headtopics.com

99% Of People Killed By Covid Last Month Were Unvaccinated, Analysis Finds ‘Lean into the culture war’: House conservatives push fight against critical race theory Meet the woman who cared for hundreds of gay men dying of AIDS when no one else would

Bad change or good?The question is whether such a world is desirable. Banks have many flaws. Scores of the unbanked are too poor to afford them. They can be slow and expensive. They often make more money from trading and fees, not normal banking. Negligent banks can create boom-and-bust cycles that inflict economic hardship. So it is easy to assume that the sidelining of banks might be just another shackle broken by technological advance.

Yet a world without banks poses some problems. Today central banks provide very little to economies. Around 90% of the broad money supply is in bank deposits, underpinned by small reserves held with the central bank and an implicit central-bank guarantee. This makes it easier for central banks to instil confidence in the system while still keeping at arm’s length from credit. Widely used central-bank money would bring them nearer the action, causing their balance-sheets to balloon. This creates risks.

Banking and capitalism are closely linked. Economists still debate why Britain industrialised first, but it is hard to read Bagehot and not conclude that the alchemy of banks turning idle deposits into engines for investment played a part. The question is what happens if central banks play a bigger role instead. It might be possible for them to avoid actually distributing loans, but it is hard to see how they could avoid some interference in credit markets.

There are broader social risks as well. Banking is fragmented, with three or four big banks in most countries, plus lots of smaller ones. But state-issued digital currencies and private payments platforms benefit from network effects, potentially concentrating power in one or two institutions. This could give governments, or a few private bosses, a wealth of information about citizens.It would also make the institutions a lot more vulnerable. A cyber-attack on the American financial system that closed JPMorgan Chase for a time would be distressing. A similar attack that shut down a Federal Reserve digital currency could be devastating. And there is the potential use of money for social control. Cash is not traceable, but digital money leaves a trail. Exclusively digital money can be programmed, restricting its use. This has benign implications: food stamps could be better targeted or stimulus spending made more effective. But it also has worrying ones: digital money could be programmed to stop it being used to pay for abortions or to buy books from abroad. headtopics.com

The scope of the issues this special report will consider is vast. It includes the role of the state in credit provision, the concentration of power in tech firms or governments, the potential for social control and the risk of new forms of warfare. A world without banks may sound to many like a dream. But it could turn out to be more like a nightmare.

Read more: The Economist »

Dad leaves 80,000 pennies to pay for child support. See what mother and daughter did next - CNN Video

A mother and daughter turned a negative into a positive after donating 80,000 pennies left on their front lawn by the father as the final child support payment. CNN affiliate WTVR reports.

yes sir

WSJ News Exclusive | CFTC Whistleblower Program in Peril Over Potential $100 Million-Plus PayoutThe Commodity Futures Trading Commission’s whistleblower program is in turmoil over a potential payout exceeding $100 million to a former Deutsche Bank executive. I understand the value of incentivizing whistleblowers. However, there is no reason that a payment of $20 million would not do that while not bankrupting the program. THoR-The House of Reyes will soon rise to prominence status with great power and there is no force in this world to stop it! To continue reading please click on the link - Peace to Israel and the world!

Does the world still need banks?Our podcast on markets, the economy and business. This week: as technology upends payments, money management and even currencies—can banks adapt to survive? | Podcasts r_shanbhogue alice_fulwood Free enterprise exchange or free commodity order r_shanbhogue alice_fulwood Nope... r_shanbhogue alice_fulwood Couple of months ago I came across a recommendation about Anthonyclaw24 how he helped investors to earn lots of money with their investments. and I decided to give a trial with the little I have. Now my little has turned into something great which was not my expectations,

Rise of the robots: Bank of America names its favorite stocks for our post-Covid futureNew for subscribers: Rise of the robots: Bank of America names its favorite stocks for our post-Covid future. Check out CNBCPro today.

This top Cleveland restaurant gives second chances to former inmatesThis top Cleveland restaurant gives second chances to formerly incarcerated people please retweet. Mauritania is facing acute humanitarian needs, including high levels of food insecurity (over 25 per cent of the population in severe food insecurity in most of the provinces) and very high rates of acute malnutrition. UN At minimum wage or below Loved this story! Shows some people just a little help to get on track!

498,000 Americans Filed For Unemployment Last Week—A New Pandemic LowThere were far fewer unemployment claims last week than economists were expecting.