The End of Banking discusses abstract concepts such as information asymmetries, systemic stability, or money creation. Sure, these concepts are critical for our argument to end banking. But there are also very tangible reasons for a world without banks that are just as important.
In The End of Banking, we describe how a financial system without banking can work. We show how life for both borrowers and lenders will improve, and how it will be better in supporting the real economy with credit. In this short blog post, we want to discuss a key feature of a financial system without banking: the absolute transparency and accountability you have as a saver.
Much more transparency
With no intermediaries left, you will always know to which real world companies or persons you have lent your money to and what they will use the money for. This is the digital age at its best.
Whether you lent money to a rainforest foundation, or to a polluting coal plant; it will take you less than 5 minutes to find out.
If lending to both companies yield the same interest at the same risk level, 99.99% of us would go for the rainforest foundation. As a result, the rainforest foundation will find it easier to obtain loans than the coal plant. And of course, the same is true on a general level. Companies and people that do things we appreciate will get easier access to credit than those who do things we disapprove. It’s the same mechanism that makes us willing to pay more for Whole Foods than for Walmart products.
It is safe to claim that we as individuals have on average much higher moral standards than the institution "bank." We are more willing to forego profits for a cause that we value. Banks and bankers, in contrast, have only two causes they are truly committed to: maximizing shareholder value and year-end incentive payments, respectively.
Does this mean our system will put an end to polluting coal plants? No. But it will tilt the game significantly in favor of the rainforest foundation. Just as we put pressure on companies to act responsibly in our role as consumers today, we would do in our role as investors.
Companies that ignore their responsibility towards society can no longer revert to banks with no conscience. They will have to face us. By requiring a high price to offset our remorse, we can make them regret not having taken their responsibilities.
BankingDigital Revolutionend of bankingfinancial innovation