IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v36y2014icp87-94.html
   My bibliography  Save this article

Banking for the public good

Author

Listed:
  • Mullineux, Andy

Abstract

Bank shareholders cannot be expected to provide good stewardship to banks because there is a conflict of interests between the shareholder owners and a non-mutually owned bank's depositors; who provide the bulk of the funds in traditional retail banks and are willing to accept a lower return on their savings than shareholders, in return for lower risk exposure. Regulation is required to protect depositors where deposit insurance schemes are at best partially funded and underwritten by taxpayers, who in turn need to be protected, and to deliver financial stability, a public good. Once some banks become ‘too big (to be allowed) to fail’ (TBTF), they enjoy additional implicit public (taxpayer) insurance that enables them to fund themselves more cheaply than smaller banks, which gives them a competitive advantage. The political influence of big banks in the US and the UK is such that they can be regarded as financial oligarchies that have hitherto successfully blocked far reaching structural reform in the wake of the ‘Global Financial Crisis’ and lobbied successfully for the financial sector liberalisation that preceded it. The TBTF problem and associated moral hazard have been worsened by mergers to save failing banks during the crisis and as a result competition within a number of national banking systems, notably the UK, has been significantly reduced. Solutions alternative to making the banks small enough to be allowed to fail are considered in this paper, but it is difficult to be convinced that they will deliver banks that promote the common or public good. It is argued that regulating retail banking as a utility and pooling insurance against financial instability using pre-funded deposit insurance schemes, with risk related premiums that can also serve as bank resolution funds, should be pursued; and that capital leverage ratios and/or Financial Activity Taxes might be used to ‘tax’ the size of banks.

Suggested Citation

  • Mullineux, Andy, 2014. "Banking for the public good," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 87-94.
  • Handle: RePEc:eee:finana:v:36:y:2014:i:c:p:87-94
    DOI: 10.1016/j.irfa.2013.11.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521913001622
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Clas Wihlborg, 2012. "Developing Distress Resolution Procedures for Financial Institutions," SUERF Studies, SUERF - The European Money and Finance Forum, number 2012/5.
    2. David Miles & Jing Yang & Gilberto Marcheggiano, 2013. "Optimal Bank Capital," Economic Journal, Royal Economic Society, vol. 123(567), pages 1-37, March.
    3. Joseph Carcello, 2009. "Governance and the Common Good," Journal of Business Ethics, Springer, vol. 89(1), pages 11-18, May.
    4. Zoltan Pozsar & Hayley Boesky & Tobias Adrian & Adam B. Ashcraft, 2013. "Shadow banking," Economic Policy Review, Federal Reserve Bank of New York, pages 1-16.
      • Zoltan Pozsar & Tobias Adrian & Adam B. Ashcraft & Hayley Boesky, 2010. "Shadow banking," Staff Reports 458, Federal Reserve Bank of New York.
    5. Velasquez, Manuel, 1992. "International Business, Morality, and the Common Good," Business Ethics Quarterly, Cambridge University Press, vol. 2(1), pages 27-40, January.
    6. Richard A. Werner, 2013. "Towards a More Stable and Sustainable Financial Architecture – A Discussion and Application of the Quantity Theory of Credit," Credit and Capital Markets, Credit and Capital Markets, vol. 46(3), pages 357-387.
    7. Mullineux, Andrew W., 2012. "Taxing banks fairly," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 154-158.
    8. Mayer, Thomas, 2013. "A Copernican turn in Banking Union urgently needed," CEPS Papers 8263, Centre for European Policy Studies.
    9. Jonathan R. Macey & Maureen O'Hara, 2003. "The corporate governance of banks," Economic Policy Review, Federal Reserve Bank of New York, issue apr, pages 91-107.
    10. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.
    11. Lev Ratnovski, 2013. "Competition Policy for Modern Banks," IMF Working Papers 13/126, International Monetary Fund.
    12. Anat R. Admati & Peter M. DeMarzo & Martin F. Hellwig & Paul Pfleiderer, 2010. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_42, Max Planck Institute for Research on Collective Goods.
    13. Andy Mullineux, 2006. "The corporate governance of banks," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 14(4), pages 375-382, November.
    14. Maria J. Nieto & Gillian G. Garcia, 2012. "The Insufficiency of Traditional Safety Nets: What Bank Resolution Fund for Europe?," FMG Special Papers sp209, Financial Markets Group.
    15. Maria J. Nieto & Gillian G. Garcia, 2012. "The insufficiency of traditional safety nets: what bank resolution fund for Europe?," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 20(2), pages 116-146, May.
    16. Andrew William (Andy) Mullineux, 2010. "Financial innovation and social welfare," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 18(3), pages 243-256, July.
    17. Michael Kumhof & Jaromir Benes, 2012. "The Chicago Plan Revisited," IMF Working Papers 12/202, International Monetary Fund.
    18. A Mullineux & V Murinde & R Sensarma, 2010. "Convergence of Corporate Finance Patterns in Europe," Economic Issues Journal Articles, Economic Issues, vol. 15(2), pages 49-68, September.
    19. Turner, Adair, 2012. "Credit creation and social optimality," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 142-153.
    20. Paul Melaschenko & Noel Reynolds, 2013. "A template for recapitalising too-big-to-fail banks," BIS Quarterly Review, Bank for International Settlements, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chaudhry, Sajid Mukhtar & Mullineux, Andrew & Agarwal, Natasha, 2015. "Balancing the regulation and taxation of banking," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 38-52.
    2. Li, Hui & Liu, Hong & Siganos, Antonios, 2016. "A comparison of the stock market reactions of convertible bond offerings between financial and non-financial institutions: Do they differ?," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 356-366.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:36:y:2014:i:c:p:87-94. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.