The Unbundling of Banks: How Stablecoins Change Everything | Charles Calomiris
🎯 Summary
[{“key_takeaways”=>[“Modern banks are defined by their political reality: they are chartered and regulated by the nation-state, making them instruments of political power, not just economic functions.”, “A bank charter is more than a license; it is the outcome of a "bank bargain" coalition that defines the entity’s powers, limitations, and implicit or explicit loss-sharing arrangements (bailouts).”, “The historical evolution of banking, including the shift from specially privileged corporations (like the East India Company) to general incorporation, is driven by political bargains, not automatic economic processes.”, “The political resistance to stablecoins, evidenced by the Biden administration’s inaction and the incumbent banks’ changing strategies, highlights that technological disruption is always mediated by vested political interests.”, “The incumbent banking system’s power structure is deeply entrenched, exemplified by the $2.5 trillion in contracts between merging banks and activist organizations from 1995-2007 to secure political approval for mergers.”, “Stablecoins threaten to unbundle core banking functions, particularly payment services, which historically have been bundled with lending due to information cost advantages, posing a direct threat to established banks and the Federal Reserve’s control over payment systems.”, “The ultimate promise of blockchain technology extends beyond medium of exchange to creating a new unit of account, which directly challenges the existence of chartered central banks like the Federal Reserve.”], “overview”=>”Charles Calomiris argues that modern banks are fundamentally political entities, chartered by the nation-state as part of a "bargain" that defines their powers and loss-sharing arrangements, rather than just abstract financial intermediaries. He contends that the rise of stablecoins represents a significant technological challenge that threatens to unbundle core banking services, forcing incumbent institutions and regulators to engage in political maneuvering to control this transformation. Understanding this political history is crucial, as the future success of stablecoins depends entirely on navigating the established political game of bank bargains, not just technological merit.”, “themes”=>[“The Political Nature of Banking and Charters”, “The Historical Evolution of Corporate Privilege”, “The Role of Political Coalitions and Bargains (Bank Bargains)”, “Stablecoins as a Disruptive Political and Technological Force”, “The Unbundling of Bank Services (Payments vs. Lending)”, “The Entrenched Power of Incumbent Financial Institutions”]}]
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đź’¬ Key Insights
"What we just experienced is how much the political winds have affected the timing and capabilities of the empowerment of crypto. If you think crypto is happening now because of some exogenous, technologically driven reality, you really are just completely hopeless, right? Because the technology has been there all along."
"Stablecoins have to be, if they're going to work, they have to work within that coalition building game of bank bargains."
"Banks are the sine qua non of the nation state because it tells you something about the way of organizing the world with power that a nation state creates rules for the existence of banks that it regulates."
"The amazing thing about the blockchain distributed ledger technology is that it will it can allow not just the best medium and exchange system the world has ever seen, but it can also allow the best unit of account system. It can basically create a substitute where I wouldn't say substitute. Let's just say a new definition of the dollar."
"The entire creation of the big banking system since the 1990s was the result of a bargain among several parties. But in fact, a lot of those parties were community activist organizations... Two and a half trillion dollars of contracts."
"The Federal Reserve is extremely threatened by stablecoins because stablecoins can create a payment system network that completely sidesteps Fedwire. And they will. Eventually, it's so much better that it has to beat the Fed."