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Wednesday, December 14, 2011

Inconvenient Facts: If Only the State Ran Banks


A demand of the occupy Wall Street crowd is to nationalize banks and have the state rigidly regulate risk. The reason for the world financial crisis is the greed of bankers and financiers throughout the world. We would be safe if we let the state handle such matters, they say. The state would get rid of “risky schemes”  like the infamous credit-default swaps traded by financial institutions and threatening their solvency.

European bank regulators have published the list of the ten  European banks with the greatest exposure to Portugal, Italy, Ireland, Greece and Spain.

Of these ten, only three are privately owned. Three are owned by German state governments and France and Belgium. Four are owned by cooperatives.

These figures suggest that private banks did better than state and cooperative banks in managing risk. I thought state and cooperative ownership were supposed to eliminate excessive risk taking.

1 comment:

  1. Replacing the central banking system with a free banking system (endogenously supplying money)would also defuse systematic risk.

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