top of page
Automated Banking System
Issue
The banking industry has participated in a number of questionable business practices that has violated the integrity of the financial system.
For example, bankers have gotten involved with derivatives, provided risky loans, and endangered the safety of deposits by investing in unsecured debt. Unconservative lending practices have also caused a number of personal bankruptcies for those who have overextended themselves with excessive debt.
In America, another concern is that the funds for the FDIC program (that reimburses depositors if banks fail) is inadequate towards insuring the nation's deposits. Billions of dollars in the insurance program does not insure trillions in deposits. By having insufficient funds, the danger of multiple bank failures may place the entire banking system at risk.
Solution
Since a nation's monetary system should be as secure and reliable as possible, replacing the multitude of commercial banks that exist today with a single automated bank at the national level would resolve many of the problems.
For example, conservative lending formulas that was inconsistent among commercial banks would protect the consolidated system from overextending itself with bad loans. Also, offering only fixed-rate loans would prevent the various risks that are associated with variable-rate loans for consumers.
The new system will also provide a "hands-free" approach towards managing interest rates that will be automatically adjusted based on the bank's deposit-to-lending ratio. In the past, the prime interest rate was manually adjusted to control inflation, which had little to do with the amount of capital in the banking system. Moving forward, inflation will be controlled by a more effective means than manually adjusting the bank's lending rate (c.f. Inflationary Tax).
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). A consolidated bank that ensures its reserves remained primarily in cash and lending never overextended also removes the need for the FDIC program since the financial institution is more secure against default.
A possible disadvantage of having a consolidated bank is that it will eliminate competition for better interest rates. However, there isn't much of a variation among banks today since their rates are based on the prime interest rate. The minor benefit of having slightly improved rates isn't worth the risk of a bank (or multiple banks) failing due to an economic crisis. A consolidated bank at the federal level is also non-profit which will provide efficient rates for all.
A consolidated bank also improves the handling of bankruptcies in that a filing will be more of an extended grace period 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 their fines and penalties to recover against such losses. Conservative lending formulas will also prevent individuals/businesses from overextending themselves in the first place, which minimizes the total number of bankruptcies as well.
Overall, a comprehensive and consolidated automated banking system at the national level will result in a more reliable, stable, and efficient monetary system for the country. In doing so, we will never have to worry about bank failures ever again.
bottom of page