Had a thought on commercial banking and lending to consumers. Why not abolish commercial banking and lending to consumers? If a consumer wants to borrow money, why not provide then the option of a free market approach of obtaining financing from an online exchange of private lenders or obtaining funds from an investment bank. Rather than lending depositor funds spawned by fractional reserve banking system, investment in a borrower should come from actual funds on hand provided by investors who agree explicitly that their investment capital will be used to fund consumer and commercial ventures.
The fractional reserve system inflates the supply of loanable funds by inflating the supply of money. This has created cheap money and the pressure to engage in frivolous consumer borrowing and poor investment decisions by lenders. Poor lending decisions also puts depositor funds at risk; a risk most depositors are unaware their funds may be subjected to.
Instead, commercial banks should act more like souped up safe deposit boxes. Revenues should be generated by fees assessed for keeping funds on deposit and for clearing checks. Also, commercial banks should be allowed to provide financing to consumers through their investment bank affiliates. More transparency in risk sharing, with no need for the federal government intervention with public funds to bail out an investment bank or a consumer that risk their own capital and assets.
If a consumer wants to grow their savings outside of the souped up deposit box services of a commercial bank, they would have three options:
- Invest their disposable income in their own going concerns or firms:
- Invest their disposable income in the stock or bond markets; or
- Invest their disposable income with an investment manager.
Leaving the fractional reserve system could also mean abandoning the Federal Reserve, and less intervention in the markets for money. Thoughts?