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OpEdNews Op Eds    H3'ed 12/18/08

A Permanent Solution to the Global Banking Crises!

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In an exclusive interview by Jayke Umarezz, noted financial management guru, Dr A S Johan revealed his views as to how he believed the current global banking crises could be successfully and permanently solved….so that the global economy may allowed to prosper again.

Dr Johan made it clear that, in his opinion, the world’s current problems can be clearly defined as problems caused by banking industry excesses. “As long as banking is privately owned and run as a business for the benefit of its shareholding investors, as it has to be, we will continue to have this problem of excesses over and over again” he said.  He went on to say “Banking like healthcare, water, energy etc. is an essential service industry that people need to survive in order to be productive and contribute to a country’s economy. They have an overriding social purpose that cannot be achieved through a private, for profit structure.Don’t be mistaken, as an entrepreneur myself, I am in support of capitalism.

I believe capitalism is the only system that encourages productivity and savings.  However, I also believe that banking and other essential industries like healthcare, water, energy etc. just cannot properly and honestly serve society in a privatized form. If banks are run as privately owned businesses, they cannot avoid taking on greater and greater levels of risks and eventually reach the excess we now know about. Because, in order to survive, banks must produce returns, expand and attract investment capital. The current banking crises is a direct result of competition among banks.

In all fairness, we cannot blame bank management for doing what they had to do to stay competitive. In our misguided belief that competition in a social service like banking is good and more is better, we have once again shot ourselves in the foot….and in the process almost wiped out the savings and wealth of millions.Bailouts through equity injection and purchase of toxic assets only serves to support the excesses of management and the greed of shareholders….at the expense of innocent depositors.

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I believe that In order to restore confidence once again and this time to keep it permanent, each country really needs just one credible national bank whose customer deposits are fully guaranteed by the Government. I propose that all existing banks registered in a particular country be merged into one large Government owned bank. Pre-merger, all current shareholders of these banks will be bought out at net asset value per share by crediting them for the sales proceeds with deposits in the new nationalized bank.

Such a state owned bank may expand its operations to other countries if it wants to, but the host Government will make it known that only deposits received and registered at their home country will be guaranteed and not deposits taken in at a foreign subsidiary or branch. The Government of that foreign country may guarantee the deposits of its residents with this foreign bank if it so wishes.

Directors of these new nationalized banks will be appointed by Government and held accountable for their decisions just as other Government appointed heads of departments are. Management and staff will effectively become Government employees with salaries and benefits similar to other equivalent Government employees. I do not see any issue of service efficiency.

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If other Government employees like the police, immigration, etc. can provide reasonably efficient services, I don’t see why banking staff cannot.The new nationalized bank’s checking (current), savings and deposit accounts will be 100% guaranteed by Government as to principal and contracted interest. These new state owned banks will also offer basic home mortgage and business loans to its domestic customers on a properly collateralized basis, in line with each Government’s policy. State owned banks will therefore exist only to provide basic deposit and loan services and will not engage in investment management services, securities brokerage, private equity, venture capital etc.

Their cash surpluses will be invested exclusively in National / Federal Government Bonds and profits if any paid to their respective Governments as dividends.Non deposit taking services like investment management services, securities brokerage, private equity, venture capital etc. will be offered by licensed and regulated investment and brokerage firms who cannot call themselves banks. Businesses, corporations and investors who need these services and can afford the costs and risks associated with dealing with these firms, may do so freely. However, they will be told, in no uncertain terms, that their accounts with these firms are not guaranteed by the Government.

It may however be a good idea to establish a credible clearing house funded by mandatory, dynamic contributions from all such investment management services, securities brokerage, private equity and venture capital firms.National banks who wish to expand their banking services beyond their national borders will only be allowed to deploy their foreign country registered deposits (which will not in any case be guaranteed by their home country Government) to finance loans in that country. If they try to fund such loans through inter - bank deposits they will find other banks reluctant to extend large lines of credit for long periods in view of the non guaranteed status of such inter – bank facilities.

Each country’s national bank will only enjoy a rating equivalent to their Government’s credibility and the amount of their guaranteed deposits. This will discourage banks from expanding overseas simply for the sake of expansion. In fact the relationship by one country’s Government postal service with other country’s postal service regarding the international delivery of mail through the offsetting of stamp sale receipts could be a good example of how the future of international banking relationships could evolve.

The recommendations I’ve made here with regard to banking will apply to other essential services like water, power, healthcare etc. as well. So let’s get back to honestly and fairly providing  the basic services that every citizen needs and can all rely on.  No doubt there may be many out there who could have issue with my proposal. If so, please let me know your views and together we can try and create a safer place for our savings”.


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Dr A S Johan is a financial and business adviser to sovereigns, corporations and family officees in Asia and the Middle East.
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