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Narrow Banking Reconsidered, The Functional Approach to Financial Reform

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  • 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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  • Ronnie J. Phillips, "undated". "Narrow Banking Reconsidered, The Functional Approach to Financial Reform," Economics Public Policy Brief Archive ppb_17, Levy Economics Institute.
    • Handle: RePEc:lev:levppb:ppb_17
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    References listed on IDEAS

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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.
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    10. Hyman P. Minsky & Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, "undated". "Community Development Banking, A Proposal to Establish a Nationwide System of Community Development Banks," Economics Public Policy Brief Archive 3, Levy Economics Institute.
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    13. Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, "undated". "A Path to Community Development, The Community Reinvestment Act, Lending Discrimination, and the Role of Community Development Banks," Economics Public Policy Brief Archive 6, Levy Economics Institute.
    14. James R. Barth, 1991. "The Great Savings and Loan Debacle," Books, American Enterprise Institute, number 918256, September.
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    Cited by:

    1. Jan Kregel, 2012. "Minsky and the Narrow Banking Proposal: No Solution for Financial Reform," Economics Public Policy Brief Archive ppb_125, Levy Economics Institute.
    2. L. Randall Wray, 2006. "Can Basel II Enhance Financial Stability?: A Pessimistic View," Economics Public Policy Brief Archive ppb_84, Levy Economics Institute.
    3. Jan Kregel, 2014. "Minsky and dynamic macroprudential regulation," PSL Quarterly Review, Economia civile, vol. 67(269), pages 217-238.
    4. Hassan Bougrine & Mario Seccareccia, 2013. "Rethinking banking institutions in contemporary economies: are there alternatives to the status quo?," Chapters, in: Louis-Philippe Rochon & Mario Seccareccia (ed.), Monetary Economies of Production, chapter 10, pages 134-159, Edward Elgar Publishing.
    5. 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.
    6. Milne, Alistair, 2013. "Register, cap and trade: A proposal for containing systemic liquidy risk," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-31.
    7. 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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