Private Banks

Reference Material on Private Banking

It is the position of The Public Banking Institute that a healthy, vibrant banking sector will require that the large, global, private banking network be supplemented by a network of more localized public banks that are chartered to serve the best interests of the geographies that charter them. There is a wealth of research on private banking from many sources and the material below was selected because we feel that it begins to represent not only the benefits of private, profit maximizing banks but also some of the systemic risks and pitfalls that can be alleviated with an active, highly networked system of public banks. If you have any questions about this material or have suggestions for other material that you think should be added to this research, please contact frank@publicbankinginstitute.org

“The Banking Panics in the United States in the 1930s: Some Lessons for Today”

Published by Oxford Review of Economic Policy, 2010 – 24 pages
In this paper the authors discuss the lessons learned from the US banking panics in the 1930s for the response by the Federal Reserve to the crisis of 2008. They revisit the debate over illiquidity versus insolvency in the banking crises of the 1930s and provide empirical evidence that the banking crises largely reflected illiquidity shocks. In the recent crisis the Fed under Bernanke had well learned the lesson from the banking panics of the 1930s of conducting expansionary monetary policy to meet demands for liquidity. However, unlike in the 1930s, the deeper problem of the recent crisis was not illiquidity but insolvency and especially the fear of insolvency of counterparties. A number of virtually insolvent US banks deemed too big and too interconnected to fail were rescued by fiscal bail-outs.
The banking panics in the United States in the 1930s some lessons for today.pdf
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“Systemic Risk: The Dynamics of Model Banking Systems”

Published by Interface: The Journal of The Royal Society, 2009 - 17 pages
The recent banking crises have made it clear that increasingly complex strategies for managing risk in individual banks have not been matched by corresponding attention to overall systemic risks. The authors explore some simple mathematical caricatures for ‘banking ecosystems’, with emphasis on the interplay between the characteristics of individual banks (capital reserves in relation to total assets, etc.) and the overall dynamical behavior of the system. The results are discussed in relation to potential regulations aimed at reducing systemic risk.
Systemic risk the dynamics of model banking systems.pdf
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“Banking on Politics - When Former High-ranking Politicians Become Bank Directors”

Oxford University Press for The World Bank 2010 – 46 pages
This report by the World Bank concludes the obvious, namely that banks that are politically connected are larger and more profitable than other banks, despite being less leveraged and having less risk. Also this connectedness is strongly negatively correlated to economic development. A benign, public-interest view is hard to reconcile with these patterns.
Banking on Politics - When Former High-ranking Politicans Become Bank Directors.pdf
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“The Evolving Landscape of Banking”

Published by Industrial and Corporate Change, Oct 2008 -- 31 pages
This article analyzes the strategic positioning of banks in the currently highly uncertain competitive arena and links this to the theory of the firm and particularly firm boundaries and learning. It evaluates the key insights from the relationship banking literature, including the potential complementarities and conflicts of interest between intermediated relationship banking activities and financial market (underwriting, securitization, etc.) activities. The authors also address the issue of the optimal conglomeration of bank activities, including the empirical evidence on scope and scale economies.
The evolving landscape of banking.pdf
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“International Cooperative Financial Institutional Structures”

Published by Credit Union Central of British Columbia, 1999 - 62 pages
This is a study of the corporate, governance, and decision-making structures of selected major cooperative financial institutions around the world including those in the Netherlands, Germany France and Australia.
Cooperative Financial Structures around the world.pdf
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“Green Paper on Shadow Banking”

Published by The European Commission, Brussels, 2012 – 14 pages
This is a report by the European Union into shadow banking, which they define as “non-bank credit activity” which they say performs an important function in the financial system and which has not been the prime focus of regulation to date in the private banking sector.
EU- Shadow Banking -2012.pdf
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“Building Effective Banking Systems in Latin American and the Caribbean”

Published by Inter-American Development Bank, 1997 - 23 pages
This paper was written by Goldman Sachs and describes the role and structure of banking systems in various countries, the nature and causes of banking sector problems and lays out ideas for “comprehensive reform”.
Builiding Effective Banking Systems in Latin America.pdf
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“Banking vs. Democracy: How Power Shifted from Parliament to The Banking Sector”

Published by the British organization Positive Money www.positivemoney.org.uk -- 33 pages
This paper outlines how the British government ceded the power to create money to the banking sector and looks at not only how money is created under this system, but why this structure massively creates benefits for the banks themselves while under serving the public for whom the system is supposed to benefit.
Banking_Vs_Democracy_Web.pdf
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“The World of forking Paths: Latin America and the Caribbean Facing Global Economic Risks”

Published in 2012 by Inter-American Development Bank - 104 pages
This paper paints a rosy picture of the economic performance of Latin America and the Caribbean over the last few years despite the melt down of the American financial system in 2008 and 2009. It advocates for increasing independent fiscal and monetary policies of the countries in the region and states that those actions should be enough to shield the area from any systemic risks that might come out of more external shocks to the world economy.
The World of Forking Paths - Facing Global Financial Risks - IDB.pdf
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“The Political Lessons of Depression-era Banking Reform”

Published by the Oxford Review of Economic Policy, 2010 – 21 pages
The general gist of this paper is that the banking reforms in the 1930s had significant negative consequences for the future of US banking and that the primary motivations for bank regulatory reforms in the 1930s (Regulation Q, the separation of investment banking from commercial banking, and the creation of federal deposit insurance) were to preserve and enhance two of the most disastrous policies that contributed to the severity and depth of the Great Depression. The overarching lesson is that the aftermath of crises are moments of high risk in public policy.
The Political Lessons of Depression-era Banking Reform.pdf
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“Banking, Finance, and the Role of the State”

Published by the Oxford Review of Economic Policy, 2011 – 14 pages
This paper considers the existing structure of financial regulation, the deficiencies that were encountered during the financial crisis, and the proposed reforms. It discusses whether these are likely to be adequate and argues that there are fundamental failures in product markets, capital markets, and government relations with financial institutions. It raises the question whether current reforms will prove sufficient.
Banking, Finance and The Role of the State.pdf
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“Global Banking and Local Markets: a National Perspective”

Published by Cambridge Journal of Regions, Economy and Society, 2009 - 20 pages
In this paper, the authors selectively review the literature on the real effects of bank consolidation and produce new evidence on the role of headquarter-to-branch functional distance on relationship lending. In the early 1990s, a widely shared opinion among scholars and practitioners was that the importance of physical proximity between banks and borrowers would be doomed to decrease drastically over time and, put in extreme terms, the end of banking geography would become a real possibility. However, the empirical evidence shows the continued importance of local credit markets for small borrowers and local economic development.
Global banking and local markets a national perspective.pdf
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“The Faces of Liberal Capitalism: Anglo-Saxon Banking Systems in Crisis?”

Published by The Cambridge Journal of Economics, 2012 - 30 pages
The recent financial crisis has severely shaken confidence in the conventional wisdom of economic liberalism, giving rise to debate about the appropriate direction of theory and policy. In this context, the sharply divergent experiences of the four main Anglo-Saxon banking systems suggest that the crisis may not so much be one of liberal capitalism per se as it is of the neoclassical variety that characterizes the British and American systems. Whereas these banking systems were very badly affected by the crisis, the Canadian and Australian systems were not. Our analysis suggests that this can be explained by differences in the way that economic liberalism was interpreted and translated into policy in the four countries during the period preceding the crisis.
The faces of liberal capitalism Anglo-Saxon banking systems in crisis.pdf
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