Against Big, Public Banks

Alexander Campbell is beginning to think that publicly-listed banks might not be such a good idea after all:

The UK's mutual building societies spent decades being humdrum, unexciting, unambitious - and solvent. Then they all demutualised, as more than one recent conference attendee from a major bank pointed out to me, and what happened to them? To Abbey National, Bradford & Bingley, Halifax, Midland, C&G, Alliance & Leicester, Woolwich, and, of course, Northern Rock? Bought up or shut down, almost to a man... Where you need physical capital - in manufacturing, for instance - tapping the equity market is indispensable. But isn't it now becoming increasingly obvious that easy access to vast amounts of (apparently) freely flowing capital -through the equity or the wholesale markets - has in fact been a huge temptation, rather than a boon, for banks? ... A bit more of "the common ownership of the means of production, distribution and exchange" might not be such a bad thing for the financial sector.

There's a strong case to be made that banks, like law firms, should be boring and conservative and reasonably small and mutually-owned. That's one of the thing which worries me most about TARP and the $140 billion tax break being used to encourage huge banks to get even bigger still. The fact that all those huge banks are publicly-listed and therefore prone to taking excessive risks only makes matters worse.

The single biggest reason why we need extra banking regulation is that the big public banks can't be trusted to regulate themselves. The smaller, mutual banks, by contrast (in the US, they're mainly credit unions) have shown themselves to be much more trustworthy. It's a good model to bear in mind.