The end of private banking

Private banking is a huge pain in the private sector’s butt. When will we see the end of private banking?

Terry Savage’s website says: “(She) is a nationally recognized expert on personal finance, the economy, and the markets. She writes a weekly personal finance column syndicated in major newspapers by Tribune Content Agency.”

Here are excerpts from an article she published on March 19, 2023

Banking on Belief
Last Monday as the failure of Silicon Valley Bank was just becoming apparent, I posted the following analysis on my website. I wouldn’t change a word.

Yet, even as the fears of fragility in the global banking system have accelerated, governments will do as they must to restore confidence –– no matter what it takes.

And it’s a good bet they’ll succeed, despite the gloomy prognostications of global financial collapse.

As I write, the news is breaking that the Swiss government has engineered the takeover of one of its largest banks, Credit Suisse, by another giant Swiss bank –UBS.

To facilitate the deal, the Swiss central bank offered UBS around $100 BILLION in liquidity to help it take on the operations of Credit Suisse, as well as $9 billion in guarantees against losses.

Although Credit Suisse had been at the heart of several major financial scandals in recent years — including bribery, money laundering, tax evasion, and corporate espionage — it had survived until this week’s global focus on the vulnerabilities of some major banks.

A lifeline of $54 billion from the Swiss National Bank was unable to stem the flood of deposit outflows late last week.

And so the marriage with UBS was arranged and announced today, with the Swiss central bank holding a shotgun full of liquidity bullets to make the match work.

In 2008, after seeing the consequences of letting Lehman fail, larger banks agreed to take on weakened competitors.

But then the government penalized the bank saviors for the problems they inherited. Understandably, strong banks are not getting in line to help this time around.

So, the Fed had to step in to resolve the problem of bank-held government bonds losing market value (see explanation below).

It offered to lend money to the banks at full face value of their U.S. Treasury securities, even though rising rates had made them worth less than face value in the current marketplace.

And the Treasury department and FDIC had to create a guarantee of ALL uninsured deposits (those over $250,000) at Silicon Valley Bank and Signature Bank — as they suddenly became “systemically important.”

It was done with the fictional explanation that the cost would be borne by a fee paid by all other banks, not taxpayer dollars.

But would they guarantee ALL deposits at ALL banks? There was no firm answer to that question.

There will be an answer soon. It’s the only way to create the required confidence in the banking system.

Your insured deposits under $250,000 are safe in your local bank. 

But why make things complicated? If you have multiple accounts, (or simply aren’t sleeping well at night), buy U. S Treasuries. 

See the craziness? Private banks repeatedly get into trouble. The government repeatedly steps in to solve the problem.

The purpose and goal of private banks is not to provide banking services.

The purpose and goal of private banks is to provide profits to the bankers.

So private banks continually look for ways, not to provide more service but to make more profit.

The more aggressive ones enter dangerous financial territory.

In response, the federal government passes laws and rules that the banks are supposed to follow.

Still, some greedy bankers get into trouble, and the federal government is forced to provide funds that safeguard innocent depositors.

Currently, the federal government insures $250,000 worth of any one depositor’s funds, but that seems not to be enough to make banks safe. Now, there is a clamor to increase the amount and in fact, to make it limitless.

Meanwhile, the government must take over the sick bank, or bribe some other bank to take it over, or lend it money to keep it going. And it happens again, and again, and again.

And we never learn one lesson:

There is no public purpose served by privately-owned, for-profit banks.

The government makes all the rules. The government inspects and supervises the banks to see that they are following the rules. The government insures depositors for when the banks don’t follow the rules. The government provides funds to bail them out when they fail.

The federal government already provides banking alternatives in the form of T-securities and other services.

Per the Bing AI:

The Federal Reserve Banks provide financial services to depository institutions including banks and credit unions, much like those that banks provide for their customers.

These services include collecting checks, electronically transferring funds, and distributing and receiving cash and coins.

They also act as fiscal agents to the federal government by maintaining the Treasury Department’s transaction account, paying Treasury checks, processing electronic payments, and issuing, transferring, and redeeming U.S. government securities.

Consider “a public bank.”

A public bank is a financial institution owned and operated by the state, city, or county government.

A public bank offers many of the same financial services as traditional banks, such as checking accounts, loans, and mortgages.

However, its main purpose is to serve the public interest in its area. As a result, a public bank puts a huge focus on improving its local community, using most of its resources to:

• Provide low-interest loans to businesses and low-income households
• Fund affordable housing and climate-protection projects
• Create new jobs and stimulate economic growth in their regions

A public bank also works as a type of “mini-Fed” to regional banks, providing them with loans and other banking solutions. They also provide banking services to government departments.

The U.S. currently has one public bank: The Bank of North Dakota. It was founded in 1919 to promote agriculture and commerce in the state. Today, it provides loans, college funding, and banking services to North Dakota residents and institutions.

A public bank is a step in the right direction. Its focus is not on profits but on providing banking services to the community.

Still, a public bank needs to have income to survive. If circumstances cause its loans suddenly to go bad — a war, a natural disaster, a new legal requirement — the bank could fail, and depositors would be punished.

A federally owned bank could provide every banking service and not worry about income. Our Monetarily Sovereign federal government neither needs nor uses income. It has infinite financial resources, the infinite ability to create dollars.

That is why the federal government is the bank insurer of last resort. When all private resources fail, the federal government has the ability (and the obligation) to step in and save the day.

If the federally owned bank could do everything a private bank can do, while removing all risk to the public, why do we still have privately owned banks?

They require constant surveillance and supervision by the federal government. They repeatedly get in trouble and must be rescued by the federal government. They repeatedly cheat customers. They repeatedly cause financial crises that the government must fix.

The private banks were the ones that redlined neighborhoods, depriving blacks of mortgages, then went the other way and overvalued houses and borrowers’ ability to pay, causing a massive failure of the banking system.

The private banks were the ones that invented high-risk products that traded at inflated values and had to be bailed out by the federal government.

Ironically, the federal government would have the resources to lend to borrowers other banks might refuse — people with a poor credit rating, poor people, people in sick neighborhoods — because even bad loans would pump growth dollars into the economy and not risk the government-owned banks solvency.

In short, private banking contributes nothing to the economy but risk. The federal government could do everything a private bank does, while eliminating the risk.

The U.S. dollar was invented by the federal government, yet for no good reason, the creation of new dollars has been turned over to private banks (via lending). It makes no sense.

The profit motive is irresistible. When surrounded by opportunities to make vast amounts of money by cheating the public, many bankers will succomb. No amount of regulation or supervision will prevent it.

Dollar creation should be in the hands of the federal government, the original dollar creator.

All banks should be federal banks.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY