Why We Need Traditional Banking

This now-standard tallying of the benefits and risks of securitization omits the costs involved in the decline of old-fashioned banking itself. And those costs are quite significant. A financial system that downgrades the role of banks becomes dangerously dependent on nearly blind trust in generic credit scores — a risk still underappreciated even a decade after the financial crisis. The marginalization of traditional banking also discourages lending to small businesses, which are essential to America’s economic dynamism. And it tends to over-centralize the supply of money, and therefore of credit, in ways that distort our economic life.

Instead of applauding the greater “completeness” of anonymous debt markets, we should lament the marginalization of traditional banking. And we should work to reverse it.

Read the full piece from Prof. Amar Bhidé in National Affairs