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What should banks be allowed to do?

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  • Charles S. Morris

Abstract

The health of the U.S. economy is heavily dependent on the health of the banking system. Commercial banks support economic activity through a number of traditional services-taking deposits, making loans, and providing payment services. Many of today's large banking organizations, however, don't look much like traditional banks. Morris examines how the financial structure has changed over the years and resulted in more complex banking organizations that combine traditional banking and nonbank activities. The increased complexity may have also increased their risk. Increased risk, in turn, can endanger financial stability and the health of the economy, putting the public safety net and taxpayers at greater risk. One possible option to reduce costs and risks to the financial system and public safety net is to restrict some of the nontraditional activities that have become permissible for banking organizations in recent years.

Suggested Citation

  • Charles S. Morris, 2011. "What should banks be allowed to do?," Economic Review, Federal Reserve Bank of Kansas City, vol. 96(Q IV), pages 55-80.
    • Handle: RePEc:fip:fedker:y:2011:i:qiv:p:55-80:n:v.96no.4
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    File URL: https://www.kansascityfed.org/documents/938/2011-What%20Should%20Banks%20Be%20Allowed%20to%20Do%3F.pdf
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    References listed on IDEAS

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    1. Thomas M. Hoenig & Charles S. Morris, 2013. "Restructuring the Banking System to Improve Safety and Soundness," World Scientific Book Chapters, in: Viral V Acharya & Thorsten Beck & Douglas D Evanoff & George G Kaufman & Richard Portes (ed.), The Social Value of the Financial Sector Too Big to Fail or Just Too Big?, chapter 21, pages 401-425, World Scientific Publishing Co. Pte. Ltd..
    2. repec:ces:ifodic:v:8:y:2010:i:2:p:14566986 is not listed on IDEAS
    3. White, Eugene Nelson, 1986. "Before the Glass-Steagall Act: An analysis of the investment banking activities of national banks," Explorations in Economic History, Elsevier, vol. 23(1), pages 33-55, January.
    4. Kroszner, Randall S & Rajan, Raghuram G, 1994. "Is the Glass-Steagall Act Justified? A Study of the U.S. Experience with Universal Banking before 1933," American Economic Review, American Economic Association, vol. 84(4), pages 810-832, September.
    5. Martin Hellwig, 2010. "Capital Regulation after the Crisis: Business as Usual?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(02), pages 40-46, July.
    6. Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September.
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    Cited by:

    1. David Luttrell & Harvey Rosenblum & Jackson Thies, 2012. "Understanding the risks inherent in shadow banking: a primer and practical lessons learned," Staff Papers, Federal Reserve Bank of Dallas, issue Nov.
    2. Yin, Haiyan, 2021. "The impact of competition and bank market regulation on banks’ cost efficiency," Journal of Multinational Financial Management, Elsevier, vol. 61(C).

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