The purpose of banking : transforming banking for stability and economic growth / Anjan V. Thakor.

Includes bibliographical references and indexes.

Introduction: the Columbo approach: a bird's eye view of the book --
Act I: The purpose of banks: what banks do and why. Money, guns and lawyers: the business of banking ; The origins of baking and the services banks provide: customers, investors and other stakeholders ; Out of sight, out of mind? Off-balance-sheet banking --
Act II: Bank decision-making and the regulation of banks: capital, regulation, purpose, and culture. When your chickens come home to roost: bank capital regulation and the search for financial stability ; Higher purpose, culture, and capital: is banking on culture a capital idea? --
Act III: Banks and markets interactions that affect stability and growth. Financial system architecture: where do banks sit in the financial system? ; Changes in banking over time --
Act IV: Financial crises: causes, effects, and cures. Financial crises and banks: what caused the great recession, and what where its effects? --
Act V: Reforming banking and looking ahead: improving banking and the potential interactions with Fintech. The final frontier: an improved banking system to achieve financial stability and economic growth ; Closing curtain: should banking be fundamentally redesigned? ; Summing up and looking ahead: Fintech and banking.

Banks and other financial institutions play a fundamental and yet divisive role in the health of any economy. As lenders they are important to everyone seeking a mortgage or a car loan. As investors they are essential gears of economic progress. And yet when crises hit and the economy tumbles, they are vilified. Is it possible for the banking and financial sectors to both be crisis-free and sustain economic growth that benefits everyone? This is the central question that Anjan Thakor, one of the leading analysts of banking and financial institutions, takes up in this insightful overview of the purpose of banking. He starts with the foundations of banks as safe-keepers of assets and providers of liquidity crucial to a dynamic economy. They manage risk, monitor borrowers, create trust, are providers of information, and facilitate innovation. And yet notwithstanding these essential purposes, the reputation of banks has suffered tremendously in the wake of crises that have harmed the financial sector, the real economy, and many people. The reason, Thakor argues, is that banks have lost sight of their higher purpose, which is tied to their role as safe-keepers of assets and creators of value. These essential economic functions should drive banks' culture, capital structure, and customer relationships. Credit ratings cannot replace relationships, leverage is no substitute for judgment, and the pursuit of profit should not come at the expense of prudence. Thakor shows that while governments can play an important role in creating the environment of banks, including through microprudential and macroprudential regulation, ultimately it is up to banks to improve their culture and align it with their purpose in society.