The Fed’s Financial-System Rewrite via Its Payment-System Proposal
There are essentially three reasons banks are different than gas stations – not counting the fact that banks make less of a mess. These are: 1) the ability to take FDIC-insured deposits and the cheap funding they provide; 2) access to the Fed’s discount window and resulting resilience; and 3) access to the payment system and the dominance in every sector in which this counts. Due to the high cost of regulation – warranted or not, it’s expensive – and the swift pace of innovation, the value of the first two benefits sharply eroded over the last few years. With its new proposal on payment-system access, the Fed contemplates taking away the third. If it does, I doubt the Fed will much like the financial system it accidentally creates as a byproduct of its own search for a payment empire.
