15 Simple Steps To Fix The Banking System
Let us get right into it:
- Fully separate retail banks (individual lending), investment banks (securities) and commercial banks (business lending). Do not allow them to intermingle or have various divisions tied to one another. Regulate them separately. This prevents the mixing of two vastly divergent competing elements of the financial services sector with wildly different incentives.
- Restrict retail banks from anything outside of deposits, payment functions, and traditional lending. This returns them to their original purpose.
- Require reasonable reserve ratios for retail banks, especially modest loan-to-share ratios. Require very plain investments, similar (but perhaps even more restrictive) of what current credit unions can acquire. We can also allow these banks lines of credit for temporary liquidity issues from commercial banks. This prevents risk of serious liquidity contagion issues.
- Restrict commercial banks to business lending and limited investments, not including equity positions. Fund these institutions separately from traditional retail deposits (similar to investment banks). This gives them a proper emphasis on their primary economic focus.
- Require any bank lender to hold the loan they contract—No sales of loans to other institutions and no bundling (securitization). Boom, no risk of crashing CDOs and predatory bundling practices.
- Completely obliterate all current derivative contracts and make derivatives illegal. This creates a high need for discernment in all financial practices instead of pushing the hedge off to derivatives. This also allows proper market functioning, which gets thrown off by derivative speculation.
- Ban all usury lending (i.e. interest-bearing credit cards and payday lenders). Allow cards with lines of credit, but require it to be paid monthly or quarterly with no interest charged. Wipe away all current usury loans/CCs. Retail banks will still offer modest lines of credit to lure depositors and secure future lending opportunities. This prevents usury.
- Require that all executives and board members that hold stock in their company be liable for bank failure jointly alongside the company. This creates a proper incentive for executives to be far more risk-averse.
- Completely revamp private equity firms (Blackstone, Goldman Sachs PIG, Carlyle, etc). Either eliminate them entirely (preferred) or remove the possibility of them holding controlling interest and having a direct influence in their positions. This eliminates the possibility of leftist loons seizing control of essential industries/businesses, which cause banking problems down the line.
- End the Fed. Self explanatory, but the primary importance is to eradicate the debt-based monetary system and return it to a commodity-backed typical monetary system with market-derived interest rates.
- Require the currency to be backed by a bundle of goods—Not a single gold standard, but a mixture of redeemable tangible assets (likely including gold, copper, silver, and others). This prevents manipulation of price by the rulers and limits the risk of government money printing. It also removes the risk of unregulated money creation by shadow banks.
- Break up the Top 6 banks. Perhaps more than just the Top 6, as the goal is for anything “too big to fail” to be eliminated. Then, we do not have to worry about taxpayers funding institutions that are too dominant to let fail, even if they deserve it. Hundreds of regionalized, independent, and smaller institutions are intrinsically safer than six centralized ones.
- Require regulators and their close relatives to have no investment, interest, or prior/future work experience in the sphere of their work-related regulation appointments. Make the punishment against this very high—criminal, not civil (and for both parties involved). This prevents the bank leaders from sending their pawns in to regulate themselves, as happens with all of our federal agencies.
- Fix incentives for corporate bank executives. Require much higher payment in risk-averse areas (fixed-income) instead of risk-prone areas (equity). Reduce the wage ratio for corporate executives to what it used to be: “It is estimated that the average CEO was paid about 20 times the typical worker’s pay in the 1950s, with that multiple rising to 42-to-1 in 1980, and to 120-to-1 in 2000”. It is currently 670-to-1. Perhaps cap it at 30-to-1. This is mostly to piss off the libertarians, but also to reduce the amount of psychopaths running around operating banks (see here: ) and to self-select for the executives with the proper interests.
- Ban all NBFIs excluding insurance firms. Just throwing this one in for good measure.
Done. There are your fifteen steps to fix our completely asinine banking system.
But it would not be my writing without some addendum thoughts:
- We should keep the FDIC/NCUA to secure small-time deposits in the event of a bank crash. But no higher than the amount, and no bailouts. Before FDIC pays out, make the executives pay out (as in #8 above). I didn’t include this because the FDIC already exists and the other point is already covered.
- I do favor a national mortgage lender. I know many would disagree here—But the state offering loans to particular buyers with something like a 10-year or 15-year loan with no interest is desirable for encouraging home ownership amid families. Offer these only to families (i.e., married with a kid) buying their primary residence under a certain threshold. Private mortgages could supplement for higher-risk persons, second homes, or homes valued over a certain amount (such as $600,000). But certain homebuyers should be supported, to promote families and home ownership. Did not include this because it isn’t exactly necessary to fix the banking system.
- We could also completely remove retail banks, and only allow credit unions for the retail sphere. We would need to first forcibly regionalize or truly limit membership into credit unions and reorganize them. Then, we could separate credit unions from investment or commercial banking entirely. Not a bad idea, but it is somewhat radical. And honestly, most larger credit unions should pay tax. It is stupid for places like Navy Federal—which acts exactly like a bank and has hundreds of billions in deposits—to not pay corporate income tax. But this is a whole other fight, best left for another day.
- Do not allow larger than 5% of any form of bank to be purchased by foreigners. Self explanatory, see China’s incursion into U.S. markets. Not included because it should be obvious.
- Term limit the bankers. If we’re going to term limit someone, I’d much prefer it to be bankers than politicians. This is excluded because it’s mostly a joke. Mostly.
There you go. Do the above fifteen steps, maybe toss in some addendums, and we would be fine. This is how the banking system was supposed to be (local, decentralized, focused on deposits/investments, alongside other noncomplex financial institutions/investments, without outside-banking interests, with small-time CEOs, to help the community finance needed ventures), before the psychopath bankers and the Fed got a hold of it.
Thanks for reading. Feel free to rage or agree in the comments. Cheers.
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