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Narrow Banking Reconsidered, The Functional Approach to Financial Reform

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Listed author(s):
  • Ronnie J. Phillips

Abstract

Phillips presents the functional approach to reforming the financial system.This approach advocates the structural separation of the depository and lending functions of banks. As a result of such a separation, monetary and credit policy undergo a parallel separation, and government supervision and regulation of the banking industry are modified. The policy prescription developed within this approach is narrow banking, the creation of separate monetary and financial service companies with the elimination of or a substantial reduction in deposit insurance. Narrow banking not only meets the safety and soundness goals of bank regulation, but also maintains an institutional structure that accommodates market forces and technological innovation. He recommends the creation of monetary service companies that would serve strictly a payments function and would hold only safe assets and the establishment by the federal government of a mutual fund that holds only government securities as assets.

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Paper provided by Levy Economics Institute in its series Economics Public Policy Brief Archive with number ppb_17.

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Handle: RePEc:lev:levppb:ppb_17
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  1. Mark D. Flood, 1992. "The great deposit insurance debate," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-77.
  2. Hyman P. Minsky & Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, 1992. "Community Development Banks," Economics Working Paper Archive wp_83, Levy Economics Institute.
  3. Hyman Minsky, 1994. "Financial instability and the decline(?) of banking: public policy implications," Proceedings 20, Federal Reserve Bank of Chicago.
  4. Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, 1993. "The Community Reinvestment Act, Lending Discrimination, and the Role of Community Development Banks," Economics Working Paper Archive wp_95, Levy Economics Institute.
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Cited by:

  1. L. Randall Wray, 2006. "Can Basel II Enhance Financial Stability?: A Pessimistic View," Economics Public Policy Brief Archive ppb_84, Levy Economics Institute.
  2. Jan Kregel, 2014. "Minsky and dynamic macroprudential regulation," PSL Quarterly Review, Economia civile, vol. 67(269), pages 217-238.
  3. Ronnie J. Phillips & Alessandro Roselli, 2009. "How to Avoid the Next Taxpayer Bailout of the Financial System: The Narrow Banking Proposal," NFI Policy Briefs 2009-PB-05, Indiana State University, Scott College of Business, Networks Financial Institute.
  4. Jan Kregel, 2012. "Minsky and the Narrow Banking Proposal: No Solution for Financial Reform," Economics Public Policy Brief Archive ppb_125, Levy Economics Institute.
  5. Hassan Bougrine & Mario Seccareccia, 2013. "Rethinking banking institutions in contemporary economies: are there alternatives to the status quo?," Chapters,in: Monetary Economies of Production, chapter 10, pages 134-159 Edward Elgar Publishing.
  6. Biagio Bossone, "undated". "Should Banks Be "Narrowed"? An Evaluation of a Plan to Reduce Financial Instability," Economics Public Policy Brief Archive ppb_69, Levy Economics Institute.

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