Challenging the Financial Intermediation Myth

Many contemporary discussions of finance or of subjects that implicate finance – for example, federal budgetary or finance-regulatory policy – seem to be systematically colored by a seldom-examined presumption. We call this presumption the “intermediated scarce private capital myth.”

Like many a myth, this one assumes or amounts to a picture. In the picture, financial institutions intermediate between private suppliers of scarce finance capital on the one hand, and various public and private end-users of this capital on the other. Unstated but always assumed in this picture is also a causal direction: the funds that intermediaries intermediate originate with the … Read more

Bank Regulation as Vestigial Corporate Regulation

Although it seems seldom if ever remarked, there is a rich set of parallels between modern U.S. bank regulation, on the one hand, and what used to be garden variety American corporation law, on the other hand. Just as bank charters are matters not of right but of conditional privilege even today, so were all corporate charters not long ago. Just as chartered banks are authorized to engage only in specifically enumerated, carefully limited activities even today, so were all corporations restricted not long ago. And just as banks are subject to strict capital regulation even today, so were all … Read more

Toward “Deep” Financial Reform: The U.S. as a Developmental Finance State

Following a familiar historical pattern, policy responses to the latest global financial crisis and subsequent economic and political dysfunction can be divided into three sequenced but overlapping phases. The first phase was a period of “wartime”-style emergency measures hastily fashioned by legislators and regulators working to place a floor beneath sinking markets and stave off further collapse. Next came a protracted, although never quite settled, debate over what actually had happened in 2008 and how best to prevent a recurrence. This second phase saw the enactment of Dodd-Frank and adoption of Basel III, two of the most significant finance-regulatory reform … Read more