Vol. 8 No. 2 - Article I - Published: June 1995 - Summary

A 'Two-Window' System for Banking Reform
by Frederick S. Carns

Despite the strong performance of the banking industry recently, the author maintains that banking reform should be a priority for at least two reasons: insured deposits increasingly have been used to fund activities for which safety-net protection is unnecessary; and banking organizations operate under legal restrictions that inhibit competition for financial services. An alternative two-window system would restrict the uses of insured deposits to traditional banking activities; but it would permit banking organizations to use uninsured funds for nonbank activities of their choice, so long as these are conducted in separately capitalized and legally distinct affiliates. The author concludes that the two-window system offers important advantages over both the current structure and any structure based upon narrow banks.