October 3, 2010
Airline deregulation increased competition and brought down prices. Telephone deregulation increased competition and brought down prices. Banking deregulation increased competition brought down the financial system which had to be rescued at taxpayer expense. What was different?
When air travel was deregulated, only the business side of it was deregulated. Airline safety is as regulated now as it was ever before. Would you fly in an airplane known to be unsafe, no matter how cheap? More than likely not. With banking it is much more difficult to separate the business side from the technical side and when banks were deregulated the safety features were thrown out.
One good way to restore "safe banking" is to separate commercial banking, where people put their deposits for safe keeping, from investment banking which is a much more speculative and risky business. Let those people who want to take on the profit and risk of investment banking do so but spare the average depositor who is just looking for the safety and convenience of deposit banking.