A proposal for reform of the banking system

What needs to happen is that cash management functions for individuals need to be separated from investment intermediation.  Checking accounts and small balance savings accounts need to be offered by some sort of commercial enterprise that invests the deposits only in Treasury bills.  Allowing Walmart to operate as a bank in this manner is a good example.  This would be a low margin business that would be supported by the existing retail infrastructure.

Individuals seeking greater returns would have to go to investment companies, without government backstops, that would invest in specific sectors.  This would mean that mortgage lending would cease to have any connection to transactional checking and savings accounts.  Mortgage lenders wouldn’t be able to “cross-sell” other financial products like insurance.

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