Banking stands revealed as a part of the state masquerading as part of the private sector. “Chicago Plan”

Liabilities to the public that are supposed to be perfectly liquid and redeemed at par (“money”) should be matched one-to-one with similar assets. This could be done by forcing intermediaries to hold reserves at the central bank or similarly liquid government liabilities.

This is the famous “Chicago Plan”. 

Martin Wolf FT 21 March 2023 

The Answer To The Banking Problem: The Chicago Plan

The banking system of the United States is in disarray right now and needs changing, but at the moment, its leaders seem to be confused as to where to go.

Not only do the authorities need to be cognizant about the current financial crisis, but they need to be aware of how technology is changing the whole system.

John M. Mason 21 March  2023

Chicago plan

The Chicago plan was a monetary and banking reform program suggested in the wake of the Great Depression by a group of University of Chicago economists including Henry Simons, Garfield Cox, Aaron Director, Paul Douglas, Albert G. Hart, Frank Knight, Lloyd Mints and Henry Schultz.

Its main provision was to require 100% reserves on deposits subject to check, so that "the creation and destruction of effective money through private lending operations would be impossible".[

The plan, in other words, envisaged to separate the issuing from the lending of money. This, according to its authors, would prevent the money supply from cyclically varying as bank loans were expanded or contracted. In addition, the payment system would become perfectly safe. No great monetary contraction as that of 1929-1933 could ever occur again.

This idea of 100% reserves on checking deposits would be advocated by other economists in the 1930s, including Lauchlin Currie of Harvard[5] and Irving Fisher of Yale.[6] 

A more recent variant of this reform idea is to be found in the "narrow banking" proposal.

Checking accounts would be held with “narrow banks” that look very like a government money-market fund, holding nothing riskier than short-term T-bills and making their money from transaction fees, not borrowing short and lending long.
James Mackintosh WSJ 16 March 2023 

A “narrow” bank would keep its money at the Federal Reserve and leave the risk-taking to other financial companies

The collapse of three regional US banks this spring is a reminder that, at their heart, banks are risk-taking businesses. For most depositors, banks are risk-free thanks to federal insurance of as much as $250,000. That’s why “like money in the bank” is shorthand for a sure thing. 

But what if a bank did hold all its customers’ deposits safely in cash, or something exactly like it—and left lending to other institutions where investors know they’re taking a risk by giving them their money. The idea is sometimes called “narrow” banking, because it reduces a bank to its most mundane function. 

Customers could put money in this bank, which in turn would stash it at the Fed, passing along the interest minus a service fee. Since every dollar of deposits would be backed by cash, there’d be no risk of a bank run. 

 “Take risks, make risky loans—just raise the money to do so by long-term debt or loads of common equity,” says economist John Cochrane, a senior fellow at Stanford University’s Hoover Institution.

Bloomberg 19 maj 2023 

The shadow banking system and The Volcker Rule


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