End of Banking

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* The End of Banking: Money, Credit, and the Digital Revolution. Jonathan McMillan.

URL = http://www.endofbanking.org/


"The End of Banking explains why a financial system without banking is both desirable and possible in the digital age.

The first part of the book presents the functions and the mechanics of traditional banking. It discusses how a delicate balance of government guarantees and banking regulation kept the flaws of banking under control in the industrial age.

The second part explains how the digital revolution unsettled this balance. The rise of shadow banking is explained, and it is shown how an unsustainable boom in the shadow banking sector led to a banking panic: the financial crisis of 2007-08.

The third part shows that the digital revolution has played a dual role. Information technology not only undermined the effectiveness of current banking regulation, but it also rendered banking redundant. An innovative blueprint for a modern financial system is presented and the implications of the end of banking are discussed.

The End of Banking distinguishes itself from other books about the financial crisis of 2007–08 in several ways.

First, it reveals the fundamental financial techniques that are common to all forms of banking—whether it is performed by medieval goldsmiths or by today’s managers at investment banks.

Second, it offers a lucid and accessible account of shadow banking that will enlighten many readers.

Third, and most importantly, The End of Banking does not rehash the same old regulatory patches or radical reform proposals from the past. Instead, it elaborates a new and intuitive idea of how to adapt the financial system to the digital age."




  • 1. The Need for Banking
  • 2. The Mechanics of Traditional Banking
  • 3. The Problems with Banking


  • 4. Banking Is Not Limited to Banks
  • 5. The Mechanics of Shadow Banking
  • 6. The Financial Crisis of 2007–08
  • 7. The Financial System after 2008


  • 8. Banking Is No Longer Needed
  • 9. Accounting for the Future: End Banking
  • 10. The Role of the Public Sector
  • 11. The Big Picture


Sepp Hasslberger:

" has much good information. It makes the current situation of the banks and other institutions in the world of finance more transparent for normal people to understand and the proposal for a handling of the crisis of finance does make sense.

The book addresses banking and not banks, because banking (the creation of private or “inside” money) is not only done by banks but by all kinds of other financial institutions as well. The “products” of banking become as good as money, or so it is thought, but when things go bad, the people pay as governments are afraid of what will happen if some of the larger institutions fold.

The proposal for handling is to require, for each financial institution (banks but also other financial companies) the presence of assets to balance the debt that can be incurred. Such assets are to be valued taking into account the worst imaginable state. It is proposed that banking may not create money, but that it may only loan out what is actually physically available.

The proposal includes a liquidity fee (first proposed by Gesell almost a century ago) to be charged on money, as a way to

1) keep money circulating and 2) have a way to directly intervene to diminish amount of money in circulation should this be necessary

There is also the proposal that money to be put into the economy be put into circulation directly through the peoplel.

The weakness of the book is that the “handling” section is smaller and perhaps less well argued than the “what’s the situation” section. Also, the book suffers from the lack of a roadway for implementation. The author has specifically excluded implementation from being discussed in the book.

So overall my view of the book is positive." (email, November 2014)

Izabella Kaminska


"The authors argue that whilst credit had to be recorded on paper in the industrial age, in the information age it suddenly became possible to record credit electronically. This one fact made all the difference:

With the advent of computers and electronic communication networks, credit became detached from banks’ balance sheets. This had far-reaching consequences for the effectiveness of banking regulation.

New forms of banking emerged, and banks organized their activities such that regulation did not apply. Institutions such as money market mutual funds (MMFs) started to perform banking over a complex network of balance sheets and outside the regulators’ spotlight. Banking that is not or only lightly regulated is often called shadow banking. Within a few decades, shadow banking became more important than traditional banking.

The rise of shadow banking, they note, revealed that banking itself was not limited to banks — a fact totally missed by the public and regulators, who failed to recognise the new boundaries and interlinkages in hand.

Regulators consequently never stood a chance of supervising the system properly. The interlinkages between regulated and unregulated financial worlds were far too poorly understood. In fact, the more they regulated the banks, the better the opportunities became for third parties who could stride both the regulated and unregulated domains. Regulated markets in this way became contaminated by the bad practices of a non-regulated market, to the disadvantage of those who operated within the regulations.

It’s an important point because it sums up the sociopathic nature of a market system that encourages those who don’t abide by the rules to exploit those who do.

And, as the authors note, it was the digital age which in many ways facilitated these processes:

In a world with fast-paced financial innovation, financial institutions can move banking anywhere where banking regulation does not apply. Regulators are set for a race they are bound to lose. The boundary problem of banking regulation has become insurmountable in the digital age.

Given the whack-a-mole nature of the problem — i.e. the fact that regulating bad practices doesn’t eliminate them, just pushes them further into the shadows — the authors argue the best course of action may be to do away with banks altogether.

While this looks very similar to the proposition advocated by digital financial crusaders like Marc Andreessen, we have to stress it’s very different. The likes of Andreessen want to kill off banks by doing what banks can no longer do due to stricter regulations. His plan is mainly regulatory arbitrage.

What our pseudonymous authors propose, however, is that the functions of money and credit are separated and assigned to the public and the private spheres, respectively.

As they explain:

This way, the financial system can provide for a functioning price system and support a decentralized and capital-intensive economy. The stability, productivity, and fairness of our economy will no longer be compromised by the organization of the financial system.

So whilst Andreessen and co. would happily continue using privately-issued liabilities as money, our authors would prefer it if credit became fully segregated from money. In their vision, public authorities would retain control of money creation, but credit creation would become fully disintermediated.

To understand the difference, one must first understand that in the authors’ eyes the biggest mistake the public made in the digital age was to assume that the private liabilities of banks were tantamount to money, and should be used as such.

As the authors eloquently put it:

For many people, banks creating money squares with the idea of government having a monopoly on issuing money. Let us be clear that banks do not issue cash; that is, they do not print dollar bills. Only the government is allowed to do so.

This confusion is understandable. It hails from the introduction of government guarantees for banks’ privately issued liabilities, which blurred the lines between privately issued money and government money to all concerned:

…with government guarantees in place, depositors know that their money is safe no matter what. They have no incentive to step in if their bank takes excessive risks. Knowing this, banks indeed take excessive risks.

So how does this all relate to the digital revolution? Well, the theory is that information technology helped to support many more options than simply holding loans on a balance sheet until maturity. Thanks to IT banks could now slice, dice and redistribute credit over a chain of balance sheets at a negligible cost. The result was a bifurcation of the market." (http://ftalphaville.ft.com/2014/10/31/2025592/why-banking-got-out-of-control-in-the-digital-age/?)


Author Introduction

"There are so many books about banking, why did you write another one?

A lot of books claim to explain the problems with banking, but most of them fail to reach the essence of the matter. Some authors interpret the financial crisis of 2007–08 as a story of greedy bankers scamming innocent widows and orphans. Scandalous stories can be entertaining to read, but identifying unchangeable aspects of human nature as the root of all evil falls short. It will not prevent the next financial crisis.

Neither will minor regulatory patches, which have been the standard answer to banking crises by many economists and politicians. The current problems with banking are deeply entrenched within the financial system. Fundamental change is needed, and some economists have indeed reverted to radical reform proposals that were originally developed decades ago.

However, while old theories have valuable lessons to teach, we found that old solutions fail to solve today’s problems with banking. Disappointed by the existing approaches toward banking and its problems, we decided to write The End of Banking.

Why did you choose this title?

The End of Banking is the result of careful deliberation, and we have chosen its title for a good reason. We found that banking was a sensible way to organize the financial system in the industrial age, but it got out of control with the rise of information technologies. The financial crisis of 2007–08 was an inevitable consequence of banking in the digital age.

Once the transformative potential of the digital revolution is understood, it becomes evident that banking is no longer an option. This is why the largest part of this book is concerned with outlining a financial system for the digital age that does not build upon banking. And it is why we have decided to call the book The End of Banking.

Who stands behind The End of Banking?

We have developed our ideas under the pseudonym Jonathan McMillan. Behind it stand two authors, both experienced in the world of economics and finance. One works in the investment bank division of a global bank. He is a financial expert who loves nothing more than digging through balance sheets, system flowcharts, and transaction data. In his role, he has gained firsthand insights into the workings of the financial centers of London and New York. To protect the identity of this author, The End of Banking is published under a pseudonym.

The other author has chosen an academic path. Always eager to learn, he earned two bachelor’s degrees, one in economics and one in international relations. He holds an M.Phil. in economics from the University of Cambridge and a Ph.D. in economics from the Swiss Federal Institute of Technology, ETH Zurich. In his research, he investigated the impact of banking and banking regulation on macroeconomic stability and welfare. He is now an economics editor at the Swiss newspaper of record. His signature quote is: “writing is thinking,” and his passion for doing both is unmatched.

Neither of us has any political affiliations, and we are not tied by financial interests. Everything we do serves only one purpose: To spread the ideas we developed in The End of Banking." (http://www.endofbanking.org/the-author/)