James Buchan: Suicidal Banking
on Tuesday, May 25, 2021James Buchan Money Quote saying bankers commit dangerous and self-destructive things that put their depositors at risk. James Buchan said:
“At the heart of banking is a suicidal strategy. Banks take money from the public or each other on call, skim it for their own reward and then lock the rest up in volatile, insecure and illiquid loans that at times they cannot redeem without public aid” — James Buchan
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In this quote, author James Buchan is critically analyzing the business model of banking. He suggests that at its core, banking relies on a “suicidal strategy” where funds are borrowed short-term from depositors or other banks but then invested long-term in risky loans that may become illiquid or default.
Buchan implies this mismatch of liquidity leaves banks vulnerable if depositors demand their money back all at once, requiring public bailouts at times to avoid collapse.
Overall, the quote portrays skepticism of a system where banks leverage public trust in unstable assets for private “reward”, while taxpayers bear the costs when risks materialize. Buchan seems to be calling attention to potential instabilities in how banks intermediate funds.