1. Altering the Rules That Create Financial Institutions by Garry Blackstock ECO6226 (Professor O. Mikhail)

2. Relationship between the financial structure and the economy Agenda Evaluate the current bank chartering process in the United States Propose limited changes to the bank chartering process Show how the changes may affect the economy

3. Relationship between the financial structure and the economy “The Smithian perspective implies that the financial structure is irrelevant, whereas the Keynesian position concludes that effective financing is necessary for the capital development of the economy.” Financial structure is a key feature distinguishing relative economic performance Bank-based (indirect ) Financing vs. Market-based (direct) Financing

4. Current bank chartering process in the United States State or National charter Interested party need to have adequate capital Established public need and convenience, with a level of competition already present in the market area Pay applicable fees National banks = approximately one third of the total banks in the United States Between 11 and 15 Months to get a charter Overall safety and soundness is assessed using CAMELS rating –Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity

5. Propose limited changes to the bank chartering process Reinstate portions of the Glass-Steagall Act –Restore the separation of commercial and investment banking Consolidation both the state and national charters – “The United States Bank Charter”

6. How the changes may affect the economy Mitigate the high risk of “too big to fail.” Elimination of the conflict of interest Best of both worlds, if both charters were combined Easier and more attractive for investors join and to compete As noted by professor Ossama Mikhail, more banks does not create a better economy. –competitive markets induces a better economy

7. Conclusion Think outside the “economist box” “Those who do not learn from history are condemned to re-live it” - George Santayana –

8. QUESTIONS??