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My Free Banking Posts

My Free Banking posts will not be focused on the monetary policy aspects of ‘free banking,’ but rather on the other aspects of what I would call a ‘free-er banking’ environment going forward. I plan to focus not only on these non-monetary policy activities of central banks, but also those of the other government actors (Ministries of Finance/Treasury Departments, deposit insurers, supervisors) that have intervened in the banking markets the past century in the US and elsewhere.

About five years ago I completed research on the functions that central banks engage in. This required reviewing about 120 central bank laws from around the world. The more familiar functions are so called ‘core’ functions, which most central banks undertake:

  • Monetary policy
  • Foreign exchange and reserve management
  • Lender of last resort
  • Supervision and regulation of commercial banks
  • Payment and settlement systems oversight and participation
  • Currency and coin management
  • Fiscal agent

But central banks also get involved in a myriad of other, ‘non-core’ functions beyond those above:

  • Non-bank financial institution supervision
  • Management of deposit insurance systems
  • Unified supervisor of financial institutions
  • Resolution and liquidation of failing banks
  • Financial intelligence unit for anti-money laundering
  • Credit bureau
  • Mortgage or housing activity
  • Open bank assistance (bailouts)
  • Agricultural related activity
  • Small and medium enterprise loans
  • Development banking
  • Financial institutions development funding
  • Loans to non-banks (bailouts)
  • Export credit
  • Ownership of a bank or state bank activity
  • Consumer protection

Although much of the focus of the Free Banking blog will likely be on monetary aspects of central banks and alternatives to central bank money, I will spend my time focused on the other issues cited above. For example, I have spent much of the past two and a half years, both through research and four lawsuits under the Freedom of Information Act, trying to figure out precisely why the Board of Governors and New York Fed felt compelled to bail out Bear Stearns and AIG (but not Lehman); why the FDIC voted to bail out Wachovia, Citigroup, Bank of America and most large banks through the FDIC Debt Guarantee Program (aka TLGP—Temporary Liquidity Guarantee Program); and why the FHFA and Treasury felt compelled to bail out Fannie Mae and Freddie Mac. I have researched the history of these powers and hope to contrast how these bailouts worked during the most recent crisis as compared to early periods of financial turmoil such as the Panic of 1907 and back to earlier crises in the pre-Federal Reserve era. Although some of these periods may not be during the ‘free’ banking period that most people on this blog speak of, it was before the creation of a central bank in the US, which was certainly a ‘freer’ banking period prior to the massive interventions that went with the combination of the birth of the Federal Reserve, the Depression era legislative changes and up through the more recent crises during the 1980s and early 1990s and the ongoing implementation of Dodd-Frank.

I also expect to share some of my experiences on these issues working with central banks and financial agencies outside of the US, which is how I have spent my professional time the past twelve years.