How to prevent the next bank crisis with John Cochrane

Cambrian Fintech with Rex Salisbury

In this episode, we are going to talk about how you to stop banks crises forever. That’s right, permanently stop bank crises. I know that seems crazy.

How? Narrow Banking. It’s an idea that’s been around since the 1930s. It essentially means that Banks cannot lend out deposits, which is why it’s also known as fully reserved banking.

If you know anything about Banking you probably think this is absolutely crazy. If Banks can lend out deposits, who will provide credit?

There are a lot of objections to Narrow Banking, some very reasonable, some not.

My Goal with this conversation is not to convince you that “Narrow Banking is “THE ANSWER.” But invite you to consider that some of the core principles of how our banking system operates are not some sort of divine, natural law, but instead are specific policy choices that we made in a particular historical context and that we could change if we wanted to.

So hopefully, you’ll find this engaging and thought provoking.

And, in case you’re thinking, "I don’t want to listen to some radical pitch a crazy idea," you should know that John’s proposal for how we transition into Narrow Banking is probably the most modest proposal you can think of. It is basically...do nothing! Some people are starting to move their money into accounts that function much like Narrow Banks, money markets backed entirely by treasuries being a prime example. So if it happens, great! That’s it, that’s his proposal.

So hope you enjoy this episode I think you’ll learn a lot even if you don’t agree with everything.

Links Mentioned in Episode

John's Blog Grumpy Economist: https://johnhcochrane.blogspot.com/

Toward a Run- free Financial System: https://www.hoover.org/sites/default/files/across-the-great-divide-ch10.pdf