The JAK members bank offers an alternative model for banking.
The JAK members bank offers an alternative model for banking.
After having explained how commercial banks can create “money” our of thin air and why current monetary policies are ineffective in restraining credit creation, the authors now turn to the issue of fiscal policy in chapter 6. Continue reading A review of “Where the money comes from” 3
Read part 1 here
After having discussed the history of money and banking, the authors now turn to modern banking practices in chapter 4. And in chapter 5 the regulation of money creation and allocation is discussed. Continue reading A review of “Where the money comes from” 2
Banking and the financial sector in general are surrounded by a cloud of mysticism, as very few – if anyone – knows how banks actually work. However, proper understanding of the financial sector is essential to sensible banking and monetary reform. Continue reading A Review of “Where does Money com from?”
In the video below prof. Richard Werner explains how central banks actually work and why quantitative easing as it is currently pursued does not work. Werner further explains how QE could work and he recommends that banks should not be allowed to provide credit for financial speculation but that credit should primarily be given the small and medium-sized enterprises (SMEs).
Richard Werner (see video below) distinguish three types of credit:
JAK stands for Jord Arbete Kapital, Danish for land, labour and capital. The JAK model of banking is an interesting example of how a full reserve bank providing interest-free loans could work practically in a modern Western economy (i.e. Denmark and Sweden). Continue reading JAK Banking
In the video below professor Richard Werner explains why local, small banks are important for a stable and prosperous economy.
Professor Werner argues that highly centralized, big banks favour big firms because that is most profitable for them. On the other hand small, locally rooted banks have more eyes for the need of the local economy and small firms.
Maybe it is an idea that banking licenses should only be valid in a small region instead of in the entire country.
Below a video in which professor Richard Werner explains how banking works, what the problems are and proposes some solutions. Werner presents this in a quite accessible way and can easily be understood by the general public. We highly recommend this video.
Intro and recapping
In part two of our series on monetary reform we briefly discussed the role of banks within the Mordan banking system. There we argued against fractional reserve banking, and to distinguish between on demand deposits and time deposits. The difference between these two types of deposit, is that in the former case the account holder can withdrawn his money from this deposit at any time, whilst in the latter case the account holder deposits his money to the bank for a certain period of time, during which he can’t withdraw his deposits.
Subsequently, we argued that banks should only allowed to lend the money from the time deposits, but not from the demand deposits. In technical terms we can see that time deposits are loans, more precisely a mutuum, from savers to the bank. And demand deposits are just money given to the bank for save keeping.
In this post we will give a further discussion of the Mordan banking system.
What are banks?
The term “bank” covers a whole lot of different kinds of financial institutions, hence it’s necessary to specify several types of banks. First we should make a distinction between retail and investment banks. Retail banks offer financial services to consumers rather than to corporations. Investment banks are usually involved in raising capital for corporations in other ways than by providing loans.
Retail banks offer a wide ranges of services to consumers and businesses: save keeping of money, facilitating financial transactions, accepting savings from and providing loans to the public. It’s perfectly possible to separate these functions in separate banks, saving banks typically only perform the last two function. And we can also imagine a bank which only accept demand deposits and facilitate transactions (in return for a fee), we could call such bank a transaction bank.
Many retail banks also offer asset management to wealthy clients, but we believe that asset management should be separated from the ordinary banking.
Organization of the new banking system
We propose a strict separation between investment banks and retail banks. This means a total ban on so-called universal banks. Practically investment banks are prohibited from offering retail banking services, and vice versa. In order to maintain this prohibition investment and retail bank should not be allowed to be united in any way.
Besides we also propose a strict separation between banking and insurance companies (we will cover insurances in another post). It’s nowadays a common practice for banks to sell insurance policies in addition to their banking services, this is mostly only for the purpose of raising more revenue for the bank. We believe that it’s in the interest of the consumers if banking and insurances are clearly separated from each other.
Currently most banks are stock companies, owned by their shareholders. Consequently banks have more incentives to serve the interests of their shareholders rather of the interests of their clients. Therefore we propose that all retail banks should be run as consumer cooperatives, i.e. only cooperative should be able to obtain a retail banking license.
Not only is this proposal in line with our commitment to a cooperative economy, but also because a cooperative bank is owned by its own clients, such a bank will pursue the interests of its clients. Additionally cooperative banks are by their very nature protected against hostile take overs. Hostile take overs have a disruptive effect on the financial sector and hence on the economy.
The obligation of being a cooperative will not apply to investment banks or asset managers.
Of course these rules have to be enforced, there we propose the establishment of the Mordan Financial Services Authority (MFSA). This supervisory agency will be separate from both the National Monetary Authority and the MFK. The MFSA will supervise the entire Mordan financial sector, it will license banks and can retract those, and quite importantly it will have the authority to arrest bankers for noncompliance with the law.