Can we make safe banks?


Yesterday I was interviewed on MarketPlace radio regarding Citigroup's (C) decision to raise bankers' pay by 50 percent. My view is that bankers should not get a bonus or a salary boost if their business loses money. This got me thinking that banks operate under economic rules that make no sense -- like paying millions of dollars to people who lose billions.

And that made me wonder why we even have banks in the first place. When I think about American history's frequent banks failures, it becomes clear that they do a lousy job of meeting the need for a safe place to store money.

The reason they fail is that the service of providing safety for people's money is not profitable as a stand-alone business. We've set up banks so the profit comes from taking people's savings and putting it at risk by lending it out.