The financial services industries are undergoing revolutionary
change. Continuing technological advances, coupled with the removal
of controls on deposit interest rates and barriers to interstate
bank expansion, have ushered in a new age of competition among
banks themselves and between banks and other types of financial
institutions. What Should Banks Do? offers a new and controversial
proposal for carefully circumscribed diversification. Robert Litan
first examines what role banks should play in this altered
environment: Should banks and their holding companies be confined
to the ""business of banking: and related activities? Or should
banking organizations be permitted to engage in much wider set of
businesses? He answers these questions by thoroughly reviewing the
available evidence on the benefits and risk of expanding bank
powers. He finds that the largest benefits would come from the
reduced risk that most bank holding companies would face if they
were permitted to diversify their service offering. He sees risks
to the safety and soundness of the banking system from financial
product diversification, but proposes ways to minimize them. In the
final chapter, Litan outlines two basic policy frameworks form
minimizing the risks while preserving the social benefits that
increased competition will eventually produce, He concludes that
the challenge for policy-makers is to act decisively to maximize
the benefits of financial product diversification, while limiting
its risks, before the rapid changes in the financial services
industries make it too late to do so.
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