Rebuilding Banking Law: Banks as Public Utilities

Under the New Deal framework for money and payments—which had its roots in the National Bank Act of 1864—banks in the United States were governed in many respects as public utilities. Charters were available only where they were consistent with public convenience and need, the usual standard for utilities. Banks enjoyed an exclusive privilege to augment the money supply, maintaining deposit account balances that households and businesses could use as a means of payment and store of value. Banks were largely limited to conducting activities consistent with their monetary purpose. Geographic expansion was constrained to promote adequate service to local communities. And a government agency, the Federal Reserve, regulated the quantity of bank money in circulation and set the interest that accrued to its holders. The result was an unprecedented period of overall financial stability that lasted more or less until 2008.



Unfortunately, policymakers have steadily undermined and degraded key elements of this system and now its logic has been largely forgotten. Deposit alternatives—financial products that as a formal, legal matter are distinct from bank deposits but that function like them in practice—match or exceed deposits in value, and the country’s once-diffuse banking system has given way to a top-heavy financial architecture in which a handful of complex conglomerates engaged in a broad range of monetary and nonmonetary financial activities with little meaningful government oversight. Although policymakers dramatically expanded regulation after the 2008 financial crisis, we still face rolling panics, a central bank committed to backstopping much of private finance, massive rent extraction by Wall Street, and democratic decline.



This paper proposes a blueprint for reform, what we call a New National Banking system. Our goal is part restoration, part innovation. We aim to both renew the framework that undergirded American prosperity in the twentieth century and refine it by improving access to bank services and carrying through on the law’s public utility vision where previous policymakers came up short. The proposal is structural not technocratic—banking law not “finreg.” Consequently, it is conceptually and legally simple: it involves fairly surgical changes and can be implemented through a series of incremental adjustments, which we delineate herein.