Tuesday, July 02, 2013

Same Question, Same Answer

American Banker surfaces a golden oldie: the paper entitled "Are Banks Special?" published 31 years ago by Gerald Corrigan when he was president of the New York Fed.   You can anticipate the answer from the title (hint: yes).  In a nutshell:
Reduced to essentials, it would appear that there are three characteristics that distinguish banks from all other classes of institutions—both financial and nonfinancial. They are:
  1. Banks offer transaction accounts.
  2. Banks are the backup source of liquidity for all other institutions.
  3. Banks are the transmission belt for monetary policy.
Link. Corrigan, reflecting on his own handiwork 20 years later, summarized:
Building on those core traits, a simple, but formal, definition of a "bank" was suggested. A "bank" was defined as any institution that was authorized to issue deposits which were "payable on demand at par and readily transferable to third parties." Given the core traits and the definition of a bank, the essay went on to stipulate that public interest considerations associated with banking were such that only banks should have access to the full-scale public safety net for financial institutions as defined in the essay.
 Link   Corrigan went on from the Minneapolis Fed to serve for eight years at the head of the New York Fed (his wife is a former head of the Boston Fed--family business).  He is still alive and active today clad in sackcloth and surviving on nuts and berries as a partner at Goldman Sachs.  Be wonderful to hear an update from him today, with reflections on his own career as it relates bank risk management.

1 comment:

Anonymous said...

it seemed like my bank was getting sold every few years meaning i had to spend a lot of time dealing with automatic deposits and withdrawals. last time, i raised so much hell about problem created for me i was allowed to keep my old account number and get a new number on the same account. in other words, my account has two numbers. is that a first in banking?