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Banking on buildings

bank.jpgBentley College economics professor Scott Sumner has a nice post on his blog that starts with some musings on bank architecture, and expounds upon that to arrive at some recommendations for the future of the finance industry.

In a nutshell, he thinks that bank buildings looked great back in the 1920s, leading up to the Great Depression, and that banks failed by the thousands not because of greed, but because branch banking was poorly regulated by state governments, and encouraged the establishment of thousands of independent banks with shaky bases of capital.

Nowadays, he says, bank buildings have none of that old charm, and fittingly, their banking strategies are just as garish and indulgent as their facades. He wishes that banks would be built in a more reasonable, conservative style, and that what goes on inside them would reflect this:

“What can 1920s bank architecture teach us about where to go in the future?  I’d like to throw out an offbeat suggestion; maybe we should try to get banks to behave like the sober, conservative institutions of the 1920s; not by deregulating them completely, but rather by regulating them in such a way that they will mimic the behavior of those earlier institutions.  But first we need to clear up a few historical misconceptions.

“Without branch banking laws, our banking system might have looked more like the Canadian system, and might well have come through the Depression in reasonably good shape.  Our modern system could not survive a Depression even half as bad, even if not a single subprime or adjustable rate mortgage had ever been made.  We have a very fragile banking system,  and so do many other developed countries.

“Many free market economists have put too much faith in market forces to provide bankers with the right set of incentives…Non-free market economists make the opposite mistake;  they put far too much faith in regulation.  Each time there is a scandal, they propose regulatory fixes for that specific issue, without considering the deeper systemic problems. Just think about the regulations after the S&L crisis, after Enron, and now what is being discussed today.  The last thing we need to worry about is another orgy of sub-prime loans; the next fiasco will almost certainly be in some other area.”

Here’s the thing though — with Baltimore banks with their stock prices in the toilet (First Mariner Bancorp) or getting gobbled up by bigger fish (Provident) — what do we go do with our venerable old bank buildings? We make nightclubs and food courts out of them. No wonder things are so bad!