Is finance too competitive?

Aiming for a boring bank system is not the right target.

Many economists are advocating for regulation that would make banking ‘boring’ and uncompetitive once again. After a crisis, it is not uncommon to hear calls to limit competition. During the Great Depression, the head of the United States National Recovery Administration argued that employers were being forced to lay off workers as a result of “the murderous doctrine of savage and wolfish competition, [of] dog-eat-dog and devil take the hindmost”. He appealed for a more collusive business environment, with the profits made from consumers to be shared between employers and workers.

Concerns about the deleterious effects of competition have always existed, even among those who are not persuaded that government diktat can replace markets, or that intrinsic human goodness is a more powerful motivator than monetary reward and punishment. Where the debate has been most heated, however, concerns the effects of competition on incentives to innovate.

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