In fact, it sounds more and more like commercial banking, in a world where risks are priced and capitalized properly, is a world of modest profit and modest returns for shareholders. Doesn’t that sound like a utility to you? That’s what banks were for most of the past century, until free market theory was used to push banking into a world of aggressive risk taking, outsized profits, and Midas-like bonuses. It worked only because banking has a “put” to the federal government to come to its rescue in times of trouble.
This put has never been applied so vigorously as today, now that Chase and its big competitors have become the ultimate conduit financial vehicle for the federal government. The Treasury and the Fed are propping up so many different markets that it is estimated some 30% of all finance comes from Washington now. Chase is one of the selected vehicles for channeling all this money, and it is allowed to take a generous transaction fee on every dollar. This is no longer banking, but rentier finance for a few institutions granted monopoly rights – again, the classic definition of a public utility.
Despite all this, Chase, as one of the biggest and best of its breed, is unable to generate anything but a 6% return on equity, and that is a variable 6% at that, prone to disappear in any quarter. What must life be like at Bank of America or Citigroup, where the troubles are worse? Or at Goldman Sachs, which is operating in an alternate universe that allows it to receive bank benefits without any of the discipline?
Essentially, what this is calling for is a highly regulated industry that is in return guaranteed monopoly: the definition of a public utility. It is worth, then, providing a counterargument to that thought. This piece is of the opinion that regulation was in place to deal with the instruments that led to the crisis; instead, what was lacking was enforcement of these regulations, which resulted in fraud.
