Tag: bank failures

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free trade & free markets ideological culture national politics & policies

Can You Bank On It?

Old Glory, bank, money, savings

With major financial institutions going belly up lately, now may not seem the best time to start a new bank.

But economic conditions are always dicey. 

In any case, much depends on whether the partners in such a venture follow sensible policies or treat depositors’ funds as gambling chips to be flung about in accordance with wishes, prayers, and prejudices.

Singer John Rich, doctor and politician Ben Carson, and pundit Larry Elder are teaming up to run Old Glory Bank. They’ve got at least one thing right. They see a market for “digital-​first banking solutions” that is expressly anti-cancel-culture.

The three purchased an existing bank, First State Bank of Elmore City, Oklahoma, and are giving it a new name and modified mission.

According to Elder, Old Glory Bank, currently accepting account reservations, will be guided by principles of “liberty, privacy, security, community, family, and faith.” It’ll eschew what Rich calls “the political weaponization of the financial system.”

This sentiment contrasts with the animus animating outfits like PayPal, which cancels customers for having PayPal-​disapproved views or political goals. (A pro-​democracy group in Hong Kong is one victim of this policy.)

Some standard banks, too, have begun spurning customers involved in certain legal but politically controversial industries, like the firearms industry.

According to a press release issued late last year, Old Glory Bank “will never cancel law-​abiding customers for their beliefs or for exercising their lawful rights of free speech.”

We will hold you to that.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets responsibility too much government

Massive Failures

How many times, in the last year, have I heard praise for FDR’s banking reforms, even down to the specifics of federal deposit insurance?

The funny thing is, this factoid is false. Roosevelt opposed deposit insurance. Everyone did who at that time knew the history of the states that had experimented with this form of subsidy. Only logrolling pushed deposit insurance into law as a known special favor to small banks in rural areas — not to cure the nation’s ills.

The actual history and lessons of bank failures is explored by Charles Calomiris in a recent paper provocatively titled “Banking Crises Yesterday and Today.” According to this Columbia Business School professor, bank panics were not uncommon in the U.S., prior to the Federal Reserve in 1913. And the Fed pretty much stopped them. Massive bank failures, on the other hand, are different. Not unheard of elsewhere, massive failures had not been a problem in America leading up to that time. However, such failures became a problem a few decades later in the Great Depression.

Calomiris explains that such massive crises are brought on, chiefly, by institutional risk factors, like deposit insurance, government manipulation of the housing market to increase ownership through loosening of financial standards, and the “too big to fail” doctrine.

It turns out that honest standards, and not mammoth government subsidies and guarantees, prove the best way to prevent catastrophe.

This is Common Sense. I’m Paul Jacob.