Bank regulators, go west!
Sir, I refer to John Dearie’s “Go west, Federal Reserve” Washington Post December 5, 2024.
In his book "Money: Whence it came, where it went” (1975), John Kenneth Galbraith discusses banks and banking issues which, because of the risk weighted bank capital/equity requirements, is very timely today.
In one section, he addresses the function of banks in the creation of wealth. Galbraith speculates on the fact that one of the basic fundamentals of the accelerated growth experienced in the western and south-western parts of the United States during the past century was the existence of an aggressive banking sector working in a relatively unregulated environment. He writes:
“Banks opened and closed doors and bankruptcies were frequent, but as a consequence of agile and flexible credit policies, even the banks that failed left a wake of development in their passing.”
And in a second section, Galbraith refers to the banks’ function of democratization of capital as they allow entities with initiative, ideas, and will to work although they initially lack the resources to participate in the region’s economic activity. In this case, Galbraith states that as the regulations affecting the activities of the banking sector are increased, the possibilities of this democratization of capital would decrease. There is obviously a risk in lending to the poor.
Sir, is that all not a good reason why bank regulators should also have a look at how the west was won?
PS. Sir, that book set me up for an already over twenty-five years fight against the Basel Committee’s risk weighted bank capital/equity requirements.
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