The End of Banking – a financial reform proposal (book)

“The End of Banking” is a book to be released before the end of November. There is a website where you can find out about availability.

The book is packed with good information. It makes the current situation in the world of finance transparent for You and I. We can finally understand how things went wrong, why the 2008 financial crisis happened and why we are still not back to normal. The authors’ proposal to overcome the banking crisis makes eminent sense and the book, although addressed to economists and bankers, is quite readable for an interested general reader.


The book addresses banking, not just banks, because banking, which the authors define as the creation of private or “inside” money, is not an activity limited to banks. Other, non-bank financial institutions are also involved in the money creation business.

“Calling for the end of banking might sound too simplistic to solve today’s problems in the financial system. Such a notion likely stems from a vague definition of banking. Some label all activities undertaken by banks as banking. Others think of banking as a bundle of financial services such as asset management or securities underwriting. We adopt a macroeconomic perspective and define banking as the creation of money out of credit.”

The “products” of banking eventually become as good as money, or so it is thought, but when things do go bad, governments, afraid of disruption of financial and economic activities, generally intervene to prevent the “too big to fail” banking institutions from folding. This goes beyond just protecting people against losing their deposits. Banks have been known to receive billions to keep them afloat and in the end, the tax payer must foot the bill.

How did this situation come about?

The authors (Jonathan McMillan is a pseudonym for two – a macroeconomist and an investment banker) say that it happened in the last few decades, it’s part of the digital revolution. When computers got into the financial markets, creating money out of credit became so easy all of a sudden, that banking could no longer be controlled. In the latest G20 meeting, a “framework for shadow banking” was discussed. Shadow banking, of course, is the creation of money by financial entities, not necessarily banks.

The authors’ proposal for handling is simple but efficient. A new, updated rule of bookkeeping is proposed to require, on balance sheets of all companies (not just the banks) the presence of real assets to balance all liabilities. This makes sure that money cannot be created by private interests. A bank may only loan money that is actually physically available or is covered by its own equity or reserves.

Today, the greater part of money in circulation is not central bank money but is created by banks and non-bank financial institutions. When private money creation will no longer be possible because of a change in liquidity requirements, money will have to be supplied in another way.

The authors propose that new money be issued no longer by banks, but by a money issuing authority. Any newly issued money is to be issued directly to citizens to spend, as an Unconditional Income distributed to all individuals.

A liquidity fee is to ensure stability of monetary value through time. No more inflation, in other words.

In addition to ensure stability of prices, the liquidity fee will

1. keep money circulating and
2. provide a way to directly intervene, if necessary, to diminish the amount of money in circulation.

The provision of credit will no longer be the main activity of the banking system. Credit is to be a private sector activity. The book gives older and new examples of disintermediated credit, being provided directly by individuals and private companies. Direct P2P credit, organised through the net, is discussed as an option for financing business investments.

The authors have specifically excluded a roadway for implementation from discussion in the book.

“Before thinking about how to implement a better financial system, we first have to define where to go. This is the objective of this book: To show that a financial system without banking is both desirable and possible.”

Like the authors, I hope that the book achieves that objective.

In any case, The End of Banking is a great contribution to the current discussion of monetary reform, especially because it is firmly grounded in the reality of banking and financial affairs and shows a creative way out of the mess we are finding ourselves in.

The expected publishing date is before the end of November, 2014. To get your copy, visit

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