A proposal for reforming the US banking system

Here’s a bank reform idea:

  1. Pass a federal law that eliminates state bank/credit union charters.  This might solve the problem of reckless bank chartering a la Georgia.
  2. Take bank oversight authority away from FRB and give it to FDIC.  The Fed has obvious conflicts of interest and has proven incompetent at oversight.   This would give the FDIC a permanent function auditing only for theft or embezzlement; eliminating the headcount variability at the FDIC which makes it slow to respond to bank crises.
  3. Reinstate Glass Steagall barring investment banks from commercial banking
  4. Make the FDIC a government entity with a budget from Congress; as a part of the Department of  Homeland Security.  See point 2.
  5. Require all deposit taking/transaction processing institutions(banks/credit unions) to invest in Treasuries only.

Since mortgages are now an investment product just like any other, make the capital for them come from “investors”; not Grandma’s checking account. Banking as described in textbooks has already ceased to exist; this plan acknowledges that and rationalizes the system.

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