Banks are designed to fail. and they fail

"Banks do not operate with the rules of the market. They need a radical change"
martin wolf

With the title "Banks are designed to fail- and they do” Martín Wolf has published in FT the best article on the crises of regional banks in the United States. Unfortunately I cannot reproduce it here for intellectual property reasons but I am going to translate a few paragraphs to encourage reading it:

"Banks fail. When they do, those who stand to lose cry out for a state bailout… This is how, crisis by crisis, we have created a banking sector that is theoretically private, but in practice governed by the State…it is a system that is essential for the functioning of the market economy but does not operate according to its rules. It is a disaster".

“Money is what you want to have to buy the things you need. This is true for families and businesses, which must pay suppliers and workers. That is why bank failures are calamities. But banks are not designed to be secure. While your deposit liabilities are supposed to be perfectly safe and liquid, your assets are subject to maturity, credit, interest rate, and liquidity risks. They are institutions for good weather. In bad times, they fail, as depositors run.

"The marriage of risky and often illiquid assets with liabilities that have to be safe and liquid within undercapitalized, profitable, bond-paying institutions, regulated by politically servile and often incompetent public sectors is a calamity waiting to happen."

“Banks need a radical change”

If the article has been interesting to you,

We invite you to share it on Social Networks

Banks are designed to fail. and they fail

About the Author

Miguel A. Fernandez Ordonez

Miguel A. Fernandez Ordonez

State economist. Former Governor of the Bank of Spain and member of the Governing Council of the European Central Bank (ECB). He currently teaches Seminars on Monetary Policy and Financial Regulation at IEUniversity.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Other articles by this author

Contact Us

Fill out the form and someone from our team will contact you shortly.