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Do We Really Need to Break Up the Banks?

You hit home. We necessarily have regulated capitalism. In today's world, the "member banks" buy their liqudity, instead of storing their liquidity. And the perversion is that from a system's standpoint, these "member banks" pay for what they already own, i.e., interest on their liabilities (which they created thru the process of fractional reserve banking).

The drive by the commercial bankers to expand their savings accounts has a totally irrational motivation, since it has meant, from a system's standpoint, competing for the opportunity to pay higher & higher interest rates, on deposits that already exist in the commercial banking system.

This shift from demand to time deposits, has converted spendable balances, into stagnant money. This transfer added nothing to the Gross National Product, and nothing will be added so long as the funds are held in the form of time deposits.

Shifts from transaction deposits, to time deposits, simply increases the aggregate costs to the banking system, and adds nothing to the system’s income.

But it does profit a particular bank, Citibank for example, to pioneer the introduction of a new financial instrument such as the negotiable CD (until their competitors catch up); and then all are losers.

The question is not whether net earnings on CD assets are greater than the cost of the CDs to the bank; the question is the effect on the total profitability of the banking system. This is not a zero sum game. One bank’s gain, is less than the losses sustained by other banks.

We have already discovered, too late, that money creation cannot be exposed to the forces of a free market. The money supply is not self regulatory. If private profit institutions are to be allowed the "sovereign right" to create money, they must be severely regulated in the management of both their assets and their liabilities.

The operations of commercial banks and all other involved institutions, cannot be fostered by deregulation. The operations of these institutions must be severely circumscribed and subject to rigorous and informed supervision.