Pros and Cones of a Decentralized Banking System

Introduction

Decentralized systems are naturally occurring, usually self-regulating systems which function without an organized center or authority. In terms of banking system, the decentralization is assumed under the inexistence or limited interference of financial institutions or governmental authorities, which suppose limited regulations’ pressures on banks’ activity and decisions.

If historically reviewing the banking system, we would depict that even closer to the 19th century, when the new economic order was established and all economical structures started to liberalize, the banking system still remained under governmental and institutional control (Neuberger, 1959). In that period also was registered an accentuated tendency of banking services expansion as a result of increasing demand from companies, governments, and financial institutions. Thus, the banking system became attractive both as a profit-generator and as a method of economy control by authorities.

Short Literature Overview

There were created at least two mainstreams arguing on the pros and cons of a decentralized baking system: the Keynesian School (supported by McCleskey, 2010; Down, 1993; Ojo, 2010 and obviously the world-well-known personalities involved in central banks activities or other financial-regulatory institutions, e.g. Bernanke) and the New Banking School or Free Banking (supported by Sergin, 1988; Gersbach, 1998; international organizations like the Centre for the Study of Financial Innovation, PriceWaterHouseCoopers). If the first one stands for a centralized system and government’ intervention into the economy, then the New Banking School advocates the abolition of central banks and the deregulation of the monetary system (Down, 1993). The most important divergence in opinions begins from the theory (supported by Keynesians and rejected by “free bankers”) that if the money supply is centrally controlled consequently authorities (central banks or FED, for U.S.) should also...