Friday, March 27, 2009

Watch the assumptions

Kevin Drum writes that banks shouldn't get too small, else they'd be... too small:
So just what would the limit be on bank size? $500 billion in assets? $200 billion? Can a country the size of the United States even have nationwide banks with limits like that?
Why presume that America needs national banks? I'm not trying to be glib here, but seriously -- assuming that they're able to lend and borrow across state borders, why presume that America must have national-scale institutions at all? It's a way of framing a question so as to exclude an answer, and I don't see why we should bias policy in favour of a particular scale. Or, if we ought to be biasing policy, there are strong, positive reasons to bias it in favour of smaller institutions where corruption, if not less frequent, would have less severe secondary effects.


Mike said...

Indeed, which further begs the question, why should size limits be dictated from outside, from the top down at all?

Why not let banks grow an shrink as they need to in order to conduct business?

Why not let it evolve from the bottom up as an emergent quality of the system, one that can change to meet new demands and new circumstances

john said...

Well, I'd argue there's a strong presumption in top-down restraints on the size of corporations, but then I'm a naÏve statist Socialist. :)

Mike said...

I'll turn you.


Gar W. Lipow said...

Turn two, the rest are food.