In the end, banks are merely privateers.

The State sanctions a market for its currency and licenses private actors to buy and sell the currency. A market is a public, social program created to generate the transactions that lead to taxable revenue. Private actors participate in the program in exchange for the right to earn interest and trading income from the spreads between bids and asks.

The private actors, the banks, want to optimize their income and will advocate before the State powers: the Executive, Legislative, and Judicial, for policies that make it easier to keep or make more income. Advocacy activity gets a bad rap from consumers because consumers believe that banks are interested in gouging them while the banks are making profits.

Consumers do not see banks as the primary private agents responsible for managing America’s payment systems thereby getting currency into the hands of the consumer. When it comes to banks, consumers see fat cats who are putting consumer deposits in jeopardy by making bad loans or earning income off of exorbitant interest rates. 

Congressmen view consumer angst toward the banking system as an opportunity to win votes. They campaign on the issue of “reigning in the big banks”, persuading consumers that they, the politico, is working in consumers’ interests.

This ironic campaign against the State interest in having private actors manage America’s payment system is a result of the political class, particularly members of Congress being too close to the electorate. Congress needs the support of voters i.e., money and votes, and obtains this support by crafting campaign narratives that depict a scenario where the big bad wolf, the bank, is about eat Little Red Riding Hood, i.e., the voter, and only the congressman via a silver bullet piece of legislation can save the day.

It is lost on the voter that the Congress created the legislative framework that spawned the national banks consumers and congressmen rail against. The consumer who is very likely totally unaware that money is created by banks via the process of lending does not appreciate congressmen are not about to legislate away banking powers that negatively impact getting credit into the hands of consumers.

In the end, banks are privateers working on behalf of the Treasury and the Congress. Treasury has an interest in increased taxable events and without capital from the banks, businesses and consumers would not be able to participate in the transactional markets. 

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Congress as the regulator of the value of money wants the supply of money to change accordingly in order to set its value.

Voters want a market system that they can trade in and make an income. 

Good political strategy requires banks to persuade the consumer that she benefits from the banking system while convincing Congress and the Treasury that any proposed legislation or regulation may have a negative impact on the financial system.

Alton Drew

31 December 2023

For more of my take on the political economy, buy my book at amazon.com/author/altondrew.