Automated Banking System

Solution
 
   Since the nation's monetary system should be as secure and reliable as possible, replacing the multitude of commercial banks that exist today with an automated consolidated bank at the federal level would resolve many of these issues.

   Conservative lending formulas would protect the system from overextending itself with bad loans. Fixed-rate loans would prevent the risks that are associated with variable-rate lending practices.

   More importantly, lending by the automated system will be strictly limited to the amount of capital that it has in reserves. In the past, banks had overextended themselves and lent out more money than they actually had on hand. This is a serious issue and why over 450 banks failed during the 2008-2012 financial crisis. Essentially, banks offered loans with fake money that they never had, which is clearly fraud.

   Savings accounts will also be better protected by an automated system since deposits will never be risked with unsecured debt. This alone would have prevented the Silicon Valley Bank failure of 2023.

   Commercial banks have also committed the unethical act of retaining the profits made from investing their deposits. In some cases, banks have invested up to 90% of deposits while their savings accounts only pay 0.01% interest. Depository institutions are not investment firms, nor do they have their customer's consent, to invest such funds without their knowledge.

   The automated banking system will not have any of these issues since its deposits will always remain in cash. Not only will the new system provide better protection regarding its lending and depository procedures, but it will also provide a "hands-free" approach towards managing interest rates.

   Under the new system, interest rates will be automatically adjusted based on its deposit-to-lending ratio. In the past, the prime interest rate was manually adjusted by the Federal Reserve in order to control inflation. Which had nothing to do with the amount of capital in the banking system. In the future, inflation will be controlled by a more direct and effective means than adjusting the bank's lending rate (c.f. Inflationary Tax for more information).

   A consolidated banking system will also provide greater stability by eliminating the risk of insolvency (e.g., never have to worry that a particular bank will fail since all banks are combined as a single entity). An automated bank that ensures that its reserves remained in cash, and lending never overextended, also removes the need for the FDIC program since the financial institution is more secure.

   The slight disadvantage of having a solitary bank is that it will eliminate the competition for better rates. However, there isn't much of a variation among banks today since their rates are based on the prime interest rate by the Federal Reserve. The minor benefit of having slightly improved rates from competition isn't worth the risk of a bank (or multiple banks) failing due to an economic crisis. An automated bank at the federal level is also non-profit that will provide efficient rates for all.

   Bankruptcy rules will be changed in that a filing will be more of an extended grace period rather than the actual forgiveness of debt. This will allow individuals and businesses time to recover from a financial downturn and not overload the system with unpaid debt obligations. In the past, this caused banks to increase fines/penalties upon their customers to recover such losses. Also, the automated system's conservative lending formulas will prevent individuals and businesses from overextending themselves in the first place, which will minimize the total number of bankruptcies overall.

   In general, a comprehensive and consolidated automated banking system at the federal level will result in a more reliable, stable, and efficient monetary system for the nation.