By Mohamed El-Erian
Published: January 20 2009 19:32 | Last updated: January 20 2009 19:32
The transformation of the banking system into a utility model has
become inevitable in light of the risks that banks’ damaged balance
sheets pose for the broader economy
Under the utility model, banks will perform narrow functions within
well-defined and constrained leverage. They will be less risky, but
also less innovative and less able to lend imaginatively. This will
inevitably reduce the speed limit for medium-term economic growth in
the US and beyond. It is too late to stop the transformation of banks
into utilities. But it is not too late to start working on a subsequent
reinvigoration in the context of a more effective regulatory structure.
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