Case Assignment: Banking Industry and Regulation: To Regulate or Not to Regulate? Introduction

In order to be effective, regulation must focus on issues that make a difference. For instance, a school might regulate the use of the drinking fountain—but if it has a drug problem, no amount of drinking fountain regulation is going to make one ounce of difference in curbing drug use by students. The same analogy can be applied to the banking industry in the U.S. The U.S. has a central banking problem—i.e., it has given over its natural sovereign right to coin its own currency to a group of bankers, who print money when and lend it to the government at interest. This practice effectively places the Federal Reserve in a sovereign position, since it wields a sovereign power, recognized for centuries—millennia even—throughout all history all over the world. Why this transfer of power was approved by Congress in 1913 is not difficult to guess—but that is not the point of this essay. This paper will address the question of whether more or less government intervention is required in the banking industry. The answer it proposes is that more regulation is needed—in fact, what is needed is the sort of regulation implemented by President Andrew Jackson, which essentially amounted to a revocation of the national bank’s mandate through Executive Order.

The Purpose of Regulation

In light of the recent banking crisis, the global economy revealed the extent of how interconnected all the markets of the world truly are. The banks have certainly intertwined their tentacles with one another in such a way that they form an apparent grinding of buying, selling, lending, and monetizing all across the globe. How to regulate such an intricate, international network? First, what is the purpose of the main banking regulations we see today?

The purpose of the main banking regulations is to allow government to have control over what banks are allowed and not allowed to do. For instance, banks are allowed to possess only a percentage of the actual wealth that they create when lending to borrowers. Banks are required to be transparent, to adhere to fiduciary duties, and so on—though, of course, mega-banks like Goldman Sachs and J.P. Morgan may bend these rules as they see fit and receive fines (small relative to the revenue they enjoy for bending the rules) because their organizations are so intertwined within government and the Federal Reserve. In short, there is regulation of smaller banks, by the big banking cartel in order to ensure that the banking cartel...

There is no real governmental regulation of the Federal Reserve: it is an independent entity that enjoys near autonomy (only having to make speeches and disclose certain financial accounting statements from time to time). In reality, the Fed regulates the U.S. and its economy—the U.S. does not regulate the Fed.
The Impact of Tightening

The impact of tightening regulations depends upon which way one is looking at the issue. Is the U.S. tightening regulations on the Fed by having it audited or its books made fully transparent to the public? Or is the Fed tightening regulations on the U.S. in terms of controlling interest rates, re-starting QE (quantitative easing) or some other type of unconventional monetary policy so much in vogue by central banks around the world today? The way in which one approaches the question of who is regulating whom will determine the outcome of the question.

Were the U.S. to tighten regulations on the banks, nothing would happen. The banks are still beholden to the Federal Reserve, and it sets the overall tone and mood of the market. The banks themselves already have it fairly easy: as of 2 April 1992, “the 12 percent required reserve ratio against net transaction deposits above the low reserve tranche level was reduced to 10 percent. The action reduced required reserves by an estimated $8.9 billion” (“Reserve Requirements,” 2016). Proponents of de-regulation say this is good for the economy because it allows for more credit. Opponents say it is bad because it leads to a lack of accountability. But as Macey (2006) states, “where government is free of political pressures to accept responsibility for the consequences of market forces, including market corrections and the bursting of bubbles, then regulation may not be necessary in order to protect the operation of markets” (p. 3). This of course is not the case.

The reality is that fractional-reserve banking allows for banks to engage in Ponzi-scheme type lending practices. Were the Fed to tighten this type of regulation, the easy credit that flows these days would dry up (in proportion to the tightening): the less money banks need to keep on reserve in order to make loans, the more loans they can make. If they are suddenly required to keep more on hand, suddenly they cannot make as many loans—which means fewer profits for the banks and less consuming for the general public (since much of what is purchased today is purchased through credit). As Calfas (2017) reports, “new data shows that 73% of American…