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Systemic Failure of Private Banking: A Case for Public Banks


  • Costas Lapavitsas


The current crisis represents systemic failure of private banking. The private nature of banks has created opacity, and exacerbated problems of liquidity, bad assets and capital shortage. Furthermore, private banks have failed in information gathering and risk management, as well as in mediating the acquisition of vital goods by households. It is paradoxical that, confronted with such systemic failure, post-Keynesian and other heterodox economists have generally made non-systemic reform proposals. This paper draws on Marxist theory to argue that systemic change is necessary, including conversion of failed private into public banks run transparently and with democratic accountability. Public banks could more easily confront the problems of liquidity and solvency; they could also play a long-term role by providing stable flows of social credit to households as well as to small and medium enterprises. Finally, public banks could provide long-term credit redirecting mature economies toward new economic activities.

Suggested Citation

  • Costas Lapavitsas, 2009. "Systemic Failure of Private Banking: A Case for Public Banks," Discussion Papers 13, Research on Money and Finance.
  • Handle: RePEc:rmf:dpaper:13

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