Radical Proposals for Banking Stability

An academic in the United States (US) created a stir recently by proposing a radically different way of running the banking system. Saule Omarova—a law professor at Cornell Law School and President Joe Biden’s nominee for the powerful post of the Office of the Comptroller of the Currency, a key banking sector regulator—ruffled feathers by proposing, in effect, the nationalisation of a big chunk of banking activity, namely the public deposits. The political backlash was so strong that Omarova had to withdraw her nomination. However, her idea is not as crazy as it sounds to some.

We need to understand where Omarova is coming from. Policymakers responded to the financial crisis of 2007 by initiating several reforms, including higher capital norms for banks, more stringent liquidity requirements, improvement in board governance, ensuring executive compensation is better aligned to risk and long-term performance, etc.