Should Private Banks Exist In The Future?

Many people are thinking about what may become of their private bank. There is a lot of debate over whether the United States government should nationalize banking institutions, and simply do away with private banks as we know them. However, it is probably safe to assume that private banks will not disappear anytime soon. There are legitimate arguments, on both sides, with regard to the nationalization of banks and how it would affect the US economy.

Roadblocks to Nationalization

While there are many advocates for the nationalization of US banks, the US government has always been reluctant to take on the role of both overseer and financer. Furthermore the Federal Reserve Bank, which is almost a government organization, is in fact owned by member private banks that are the shareholders of the Federal Reserve Bank. Many people are under the assumption that the Federal Reserve Bank is a full-fledged government organization, when in fact; only the members of the Board of Governors is selected by the government. Therefore, it is difficult to reasonably believe that the Federal Reserve would advocates total nationalization of all US private banks.

Furthermore, the United States currently has over 11 trillion dollars in debt; moreover, the private bank industry has another several trillion dollars of debt that needs to be paid. Therefore, if the United States government were to take over all of the private banks, the United States would be responsible for paying all of that debt. Many argue that in order to pay the additional debt of the private banking industry, federal income taxes would have to be increased to a level that most American citizens simply would not be able pay.

In addition, there are several trillion dollars currently being held in private money market and equity funds that can only maintain funds in AAA credit rated banking institutions; the credit rating of the United States is well below the required AAA rating that most of these funds require; therefore, the majority of these funds would be required to liquidate their holdings in banks own completely by the United States government.

If many of these funds were to simultaneously request the withdrawal of funds from a nationalized bank, the ensuing damage caused by the sudden withdrawals of tremendous amounts of cash would definitely have an impact on bond markets, interest rates and the ability of nationalized banks to loan any money at all.

Other Potential Resolutions

While it is doubtful that the US government will ever attempt to nationalize all US private banks, many experts in the banking industry agree that more oversight may be required. However, not all of the oversight should be of the private banks. In fact, many people are advocating more oversight of the Federal Reserve Bank itself.

While poor investment and lending practices and the desire to earn higher profits may have cost the caused the current banking crisis, many people also believe that the Federal Reserve's participation in these schemes cannot be ignored. Therefore, many people are advocating more government control of the Federal Reserve itself.

In its present form, there is no audit of the Federal Reserve Bank or its holding, and no government analysis of the way the Federal Reserve Bank works with the Department of the Treasury to provide cash and overnight loans to participating member banks.