Narrow Banking – Banking System Without Private Issuance of Credit Money as a Solution for More Resistant Banks and More Stable Financial System

Radojičić Jelena () and Radovanović Predrag ()
Additional contact information
Radojičić Jelena: University of Niš, Faculty of Economics, Serbia
Radovanović Predrag: High Business School, Leskovac, Serbia

Economic Themes, 2015, vol. 53, issue 3, 376-397

Abstract: The global financial crisis has revived interest in the introduction of the “narrow banking”, which has become a topical issue in both political and academic circles. There are attitudes that banks have maximized yields by excessive credit expansion, while the losses associated with the excessive risks undertaken in pre-crisis period fell at the expense of taxpayers. Based on the idea that modern financial systems have structural problems whose solution requires fundamental reform, a new wave of regulatory proposals is launched for solving the problems. They are generally aimed to eliminate the banks’ ability to issue credit money that enjoys both implicit and explicit government guarantees. The concept of narrow banking, as one of the variants of full-reserve banking, provides ex-ante a level of bank deposits’ protection which is the same as the level of central bank’s money protection. Motives for the application of this concept are the following: to make banks more resistant to bank runs; to avoid creating a speculative “bubbles”; and to make the financial system more stable. The paper gives an overview of historical and new proposals of narrow banking. In addition, the concept of narrow banking is analyzed from the point of view of its basic characteristics and objectives, followed by a discussion on the problems and possible success of its implementation.

Keywords: credit money; moral hazard; financial crisis; narrow banking; financial stability (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/ethemes-2015-0022 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:ecothe:v:53:y:2015:i:3:p:376-397:n:5

DOI: 10.1515/ethemes-2015-0022

Access Statistics for this article

Economic Themes is currently edited by Marija Radosavljević

More articles in Economic Themes from Sciendo
Bibliographic data for series maintained by Peter Golla ().