Week 5 explores applications of the AMRI toolkit to banking and the financial sector. The readings interrogate the laws that structure the financial system and assess proposals to promote equity, expand access, and increase democratic accountability in finance. Mehrsa Baradaran, for example, discusses the “separate and unequal credit market” that emerged from the New Deal and the inadequacy of neoliberal reforms that Congress has enacted in the decades since to ameliorate racial inequality in the financial system. Saule Omarova traces the growth of too-big-to-fail financial institutions, the watering down of laws and regulations separating banking and commerce, and the weak regulation of derivatives. These and other accounts demonstrate the extent to which U.S. laws and regulations have facilitated private power over the financial system at the expense of democratic control, thereby exacerbating both inequality and systemic risk.
Thus, the readings propose solutions that would reassert the public’s role in the allocation of money and capital and the functioning of the financial system. Professor Baradaran calls for a “financial redesign,” including direct reparations, public banks to administer more equitable loans, postal banking, and other reforms. Similarly, Morgan Ricks, John Crawford, and Lev Menand call for universal bank accounts through the Federal Reserve (“FedAccounts”)—a public option—as a way to reduce the unbanked and underbanked population and create a better-functioning banking system. Professor Omarova, meanwhile, advocates a greater role for the Federal Reserve in allocating credit in the economy, reorienting investment capital toward more productive and equitable uses. These and other proposals illustrate the importance of public utility and public options as key tools in the financial regulatory toolkit.
In the lecture video, Professor Ricks discusses banking regulation as a form of infrastructure regulation and the history and value of public utility regulation in the financial sector. Professor Omarova reframes banking as a franchise-like relationship between public and private. Based on that understanding, she discusses reforms that would reduce the distortions and instability of the current system and create a greater public role in allocating credit in the economy. Finally, Professor Baradaran expands on the racial and socioeconomic inequalities at the heart of the U.S. banking system. She also discusses the limits of antitrust as a tool to address these problems.