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The End of Banking: Money, Credit, and the Digital Revolution
In this thought-provoking book, Jonathan McMillan dissects banking to reveal its inner workings. He cuts through the complexity of modern finance and explains how banking almost crashed our financial system. Banking is broken, and McMillan reveals why we can no longer fix it.
The digital revolution turns out to be the game changer that calls for the end of banking. But McMillan refrains from merely pointing out flaws. Building on economic research and a rigorous analytical approach, he goes on to provide an innovative blueprint for a modern financial system.
The End of Banking transforms our understanding of the financial system. It identifies the root cause of today's problems with banking and presents a solution that stands out against existing reform proposals,
The digital revolution turns out to be the game changer that calls for the end of banking. But McMillan refrains from merely pointing out flaws. Building on economic research and a rigorous analytical approach, he goes on to provide an innovative blueprint for a modern financial system.
The End of Banking transforms our understanding of the financial system. It identifies the root cause of today's problems with banking and presents a solution that stands out against existing reform proposals,
248 pages, Kindle Edition
First published November 21, 2014
61 people are currently reading
1231 people want to read
About the author
Jonathan McMillan
5 books7 followersJonathan McMillan is a pseudonym. Behind it stands an unlikely pair: a banker and an economist. The banker earned his B.A. and M.A. in economics from the University of St. Gallen and then began his career at a large global bank. Working in various roles out of Zurich, New York, and London, he gained deep insights into the inner workings of banking. The pseudonym is used because of this author’s position.
The other author is Jürg Müller, an economist. He holds two B.A. degrees from the University of St. Gallen, an M. Phil. in economics from the University of Cambridge, and a Ph.D. from ETH Zurich. In his research, he investigated the impact of banking regulation on macroeconomic stability and welfare; parts of his thesis were published in the Journal of Economic Theory.
After his doctoral studies, Jürg started as an economics editor at Neue Zürcher Zeitung, where he covered the financial sector. He later joined Avenir Suisse, Switzerland’s largest think tank, as a senior fellow. In 2023, he was elected as the director and CEO of Avenir Suisse and became a lecturer at the economics faculty of the University of Zurich.
The two authors came to know each other during their undergraduate studies. They lost touch in the years after due to their different career choices. In 2011, their paths crossed again in a London pub. Disappointed by how their peers in banking and academia handled the financial crisis of 2008, they decided to set forth on a writing journey together.
In their first book, The End of Banking, they shared their complementary insights into the mechanisms of modern finance. The book was translated into eight languages, but failed to spark a public debate due to its more theoretical nature. This is why they decided to write Capitalism and the Market Economy, which presents an actionable reform plan to tackle today’s economic problems at their roots.
The other author is Jürg Müller, an economist. He holds two B.A. degrees from the University of St. Gallen, an M. Phil. in economics from the University of Cambridge, and a Ph.D. from ETH Zurich. In his research, he investigated the impact of banking regulation on macroeconomic stability and welfare; parts of his thesis were published in the Journal of Economic Theory.
After his doctoral studies, Jürg started as an economics editor at Neue Zürcher Zeitung, where he covered the financial sector. He later joined Avenir Suisse, Switzerland’s largest think tank, as a senior fellow. In 2023, he was elected as the director and CEO of Avenir Suisse and became a lecturer at the economics faculty of the University of Zurich.
The two authors came to know each other during their undergraduate studies. They lost touch in the years after due to their different career choices. In 2011, their paths crossed again in a London pub. Disappointed by how their peers in banking and academia handled the financial crisis of 2008, they decided to set forth on a writing journey together.
In their first book, The End of Banking, they shared their complementary insights into the mechanisms of modern finance. The book was translated into eight languages, but failed to spark a public debate due to its more theoretical nature. This is why they decided to write Capitalism and the Market Economy, which presents an actionable reform plan to tackle today’s economic problems at their roots.
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Displaying 1 - 30 of 41 reviews
December 9, 2014
The End of Banking presents an interesting alternative to traditional banking by taking advantage of the emergence of the digital revolution and presents a unique solution for the challenges facing our current banking system. Being a person with little knowledge of the complexities of our financial system, I found this book to be a difficult read, even after just finishing up a macroeconomics course this summer. With that said, I still recommend this book for its valuable insights, thoughtful explanations, and for a future reference for a further study of banking. I really enjoyed the book, even if at times it went way over my head.
December 3, 2014
In the first part of „The End of Banking“ Jonathan McMillan shows in an easy to follow way how the financial industry works in general. He points out why the financial industry is – also for todays – real economy essential and how it works.
After the basics are explained the author uses part 2 to explain how the complex financial products work and what problems are caused by them. He draws the rise and fall of these products and how they played an important part in the financial crisis of 2007/2008. This part helps especially in putting the headlines of the last couple of years into a logical order.
In the third part the author presents his vision of the financial industry in the future which is an important input for the discussions we have to lead.
The book is written with great knowledge and insight on the banking industry. The use of practical examples helps to get a grip on this rather dry topic.
After the basics are explained the author uses part 2 to explain how the complex financial products work and what problems are caused by them. He draws the rise and fall of these products and how they played an important part in the financial crisis of 2007/2008. This part helps especially in putting the headlines of the last couple of years into a logical order.
In the third part the author presents his vision of the financial industry in the future which is an important input for the discussions we have to lead.
The book is written with great knowledge and insight on the banking industry. The use of practical examples helps to get a grip on this rather dry topic.
December 24, 2014
"The End of Banking: Money, Credit, and the Digital Revolution" makes grand promises for a reader, such as myself, that considers him or herself a sworn enemy of modern banking. At best, banking in its traditional role can be reduced to a regulated, politically anointed Ponzi scheme. At worst, banking (in the guise of shadow banking) is a convoluted farce that has become so complex, by design, that not even the regulators or credit rating agencies understand the subject matter. A book of this design should hold great appeal and hope for the similarly minded. Sadly, this potential is not realized, and one hopes the authors will go back to the drawing board.
The first half of the book presents a very competent description of basic traditional banking as well as banking in the modern (digital) era. The authors also do a good job of explaining, in broad brush strokes, the forces that led to the economic meltdown of 2008. The wheels come completely off though as the text transitions to the authors' view of a post-banking financial system. The book reads like a condensed version of a text book, and is essentially a 189 page outline. The authors, having done such a good job outlining the basics of banking and the inherent problems found in the current structure, completely miss the mark in presenting their ideas as a structured whole, and in testing their "model" against all of the criteria they lay out in the early sections of the book. Instead, that authors give us a tantalizing morsel of a new approach, and then wander off in the direction of some distant concept that comes off as mere filler.
Conceptually, the book hits some of the right notes, such as practical considerations for the look and feel of the post-banking structure by consumers. The look and feel of the use of "money" is the same under this model, which will be key to any true transformation. The use of new technologies to obtain immediate liquidity is also explored before the academic retreats to his hermitage. Importantly, the authors also call for a move towards solvency which is an implied call to move away from the silliness of the current reserve system. I fear they assume that the legal and practical implementation of solvency will be far easier than reality would dictate.
At the end of the day, this book is a good starting place for the post-banking discussion, but on its own, does not get the reader to the end of banking.
This review is of an advanced reader copy provided for free by the publisher.
The first half of the book presents a very competent description of basic traditional banking as well as banking in the modern (digital) era. The authors also do a good job of explaining, in broad brush strokes, the forces that led to the economic meltdown of 2008. The wheels come completely off though as the text transitions to the authors' view of a post-banking financial system. The book reads like a condensed version of a text book, and is essentially a 189 page outline. The authors, having done such a good job outlining the basics of banking and the inherent problems found in the current structure, completely miss the mark in presenting their ideas as a structured whole, and in testing their "model" against all of the criteria they lay out in the early sections of the book. Instead, that authors give us a tantalizing morsel of a new approach, and then wander off in the direction of some distant concept that comes off as mere filler.
Conceptually, the book hits some of the right notes, such as practical considerations for the look and feel of the post-banking structure by consumers. The look and feel of the use of "money" is the same under this model, which will be key to any true transformation. The use of new technologies to obtain immediate liquidity is also explored before the academic retreats to his hermitage. Importantly, the authors also call for a move towards solvency which is an implied call to move away from the silliness of the current reserve system. I fear they assume that the legal and practical implementation of solvency will be far easier than reality would dictate.
At the end of the day, this book is a good starting place for the post-banking discussion, but on its own, does not get the reader to the end of banking.
This review is of an advanced reader copy provided for free by the publisher.
December 21, 2020
I was never interested in banking and finance in general. But a review on this book in the internet made me curious.
It's surprisingly short and concise (apparently the authors earn enough not to pour too much water to books which they write). At the same time a bare minimum of repetitions is available, just enough to refresh in a reader's memory something important written before. So, for me, not much skilled in banking but used to reading technical or science books, the book was very comfortable to read.
The authors express their main idea right off the bat: these days banking is overcomplicated, dangerous and... obsolete. And it can and should be canceled. But immediately after this statement they admit that they don't offer a plan for how to do this, how to facilitate a transition.
First, they start with an explanation for such readers as myself what the banking is and how banks work, what it means that 'banks create money' and what basically the main purpose of the banking is. Borrowers need big lumps of money for long periods. Whereas lenders prefer to lend small sums and for short periods. And banks create a bridge between these two poles. It's their historical function. But banking comes with a cost. After financial crisis in the beginning of XX century when an outflow of depositors made many banks collapsed, notions of ‘a deposit insurance’ and ‘a lender of last resort’ were invented. At the same moment first regulations intended to limit taste for risk among bankers were introduced. And this helped and stabilized the banking for a few decades.
Until information technologies came to the scene. These technologies made easier the task of moving bank’s actives from a bank’s balance to balances of child companies. This allowed banks to move their actives from their own balances and to walk around regulation requirements to restrict volumes of their actives in relation to their own capitals. This was achieved with invention of ABS (asset-backed security) which is a financial instrument aggregating many loans given by a bank to various clients. So, using the language of math it’s a first derivative of a loan. But then a second derivative was invented (CDO), which would aggregate a few ABS, which aggregate a set of loans (in the house that Jack built...). Then a third derivative (CDO2), and so on. But what is true in math appeared the same true in finance: the higher order of derivative you have the less you can say about initial function/assets. But these papers were sold by banks to each other or were used as a security or pledge for another loan, thus spreading around and creating a chain of dependencies on the same initial asset or set of assets (loans).
And then the crisis of 2007-2008 happened. It was enough for a large group of mortgage borrowers to fail in order to cause a domino effect when dependent actives appeared to be of no value. In this situation an American government had to go further and to introduce measures even wider than ones introduced a century ago. To stop a collapse of the entire financial system they had to announce guarantees for those derivatives, effectively paying to their holders.
But what happened next? More elaborated and complicated regulations followed. They made banks to have dedicated departments which only task was to reconcile the bank's activity with these regulations. But it didn't remove the source of the problem. The same tricks are still possible and allowed, just became more complicated. And big banks are almost completely protected against insolvency because they are systemically important. Which effectively opens for them all doors and allows any risk. Also, such guarantees work in fact as public subsidies creating unequal conditions for big and smaller banks. Another problem, more conceptual, is that systematic suppression of risk creates eventually even higher risk. The bubble is growing bigger and bigger.
Then the authors suggest making a step back and revising what the main purpose of the banking was and if we still need banks for that purpose. And out of a sudden it seems that the same function can be carried out now differently. The same information technologies can fill the old gap between lenders and borrowers. There are online platforms which allow direct investments or loans. A credit history of a company or a person can be checked automatically these days. And also, the owners of these platforms provide check and consultancy services without offering banking services, which means without serving deposits and without giving loans. The problem of liquidity of assets and immediate access to money (like with purchases payed by a debit card) is solved with trading bots which can sell a person's share in some loan online just in milliseconds. And there are many other nuances which I'm not going to mention here but which, in the authors words, allow using absolutely the same 'interface' as the traditional banking uses but which is implemented absolutely different.
So, then what to do with banks? The authors underline that existing regulations attempt mostly to restrict risky operations. Those regulations try to define which operation is risky and in which situations and they just get stuck in a swamp of multidimensional, multivariable system with many 'ifs’'. Whereas they, authors, suggest looking to the root of the banking: to the old good balance sheet with assets and liabilities. And they offer to introduce just a single rule, a 'system solvency rule': the value of the organization’s real assets should be higher than or equal to the volume of the organization’s liabilities in the worst financial condition. Here real assets are all non-financial assets like equipment, hardware, patents, etc. And the worst financial condition roughly speaking happens when an organization has to pay out all debts. This rule is applicable for all types of organizations. It doesn't create any problem for the real sector of economy, for companies creating goods and services: in most cases they comply to this rule. But the rule effectively forbids financing loans with loans (in case of traditional banks, with money borrowed from clients, i.e. from deposits). Thus, it forbids banking. Because it requires securing loans only with own capital. But it does not kill lending per se. It just allows direct lending, without mediators. Like earlier mentioned online platforms for direct lending/investments.
Then the book shows a brave new world without banking. It focuses much on how it will impact the public monetary policies. And here I was a bit stuck. It was like to discover for myself the physics of atom: how a state operate with money on a level of their cost, that in order to have stable prices the state makes us to pay for using money and at the same time pays us (injects money to the economy).
Like I said in the beginning, the book doesn't share any hint on how to implement such retreat from banking in real life. Yes, it's obvious that it's a very difficult task. For example, what to do with billions of existing loans and deposits? They can't be canceled overnight since no bank has enough capital to return money to all depositors, and no borrower is able to repay a loan at any arbitrary time before a final date. So either banks should stop borrowing/lending but still continue to work until the last cent will be paid (but it's like to stop fueling an engine, it will just stop working) or some super bank (apparently a public bank) should buy all loans and deposits and to take care of a soft landing of the banking system. But this also looks like an immense weight for a state. Another problem is people: employees, a giant army of financiers, lawyers, IT, software engineers, etc. Not to mention a huge cloud of related businesses around. It's a big sector of economy.
While reading I was thinking that gradual retreat from banking must happen naturally as soon as loan/trading platforms will prove to be easy to use, more profitable, less risky, and not to be a subject to chain reactions on financial markets. Clients will vote with money. But the authors claim that the opposite is happening now: such platforms launch banking services in parallel to the initial role of a ‘stateless protocol’ of communication between lenders and borrowers.
But although the scale of this problem is very clear even for such an inexperienced reader as myself, it should be not only clear to the authors of the book, but they definitely must have some vision how such a transition from banking to no-banking could be facilitated, however crazy that vision would be. It sounds like utopia anyway, so why not to unleash all the most daring fantasies?
Otherwise it’s a very good book. Very specific, concise, and with things called with their real names.
It's surprisingly short and concise (apparently the authors earn enough not to pour too much water to books which they write). At the same time a bare minimum of repetitions is available, just enough to refresh in a reader's memory something important written before. So, for me, not much skilled in banking but used to reading technical or science books, the book was very comfortable to read.
The authors express their main idea right off the bat: these days banking is overcomplicated, dangerous and... obsolete. And it can and should be canceled. But immediately after this statement they admit that they don't offer a plan for how to do this, how to facilitate a transition.
First, they start with an explanation for such readers as myself what the banking is and how banks work, what it means that 'banks create money' and what basically the main purpose of the banking is. Borrowers need big lumps of money for long periods. Whereas lenders prefer to lend small sums and for short periods. And banks create a bridge between these two poles. It's their historical function. But banking comes with a cost. After financial crisis in the beginning of XX century when an outflow of depositors made many banks collapsed, notions of ‘a deposit insurance’ and ‘a lender of last resort’ were invented. At the same moment first regulations intended to limit taste for risk among bankers were introduced. And this helped and stabilized the banking for a few decades.
Until information technologies came to the scene. These technologies made easier the task of moving bank’s actives from a bank’s balance to balances of child companies. This allowed banks to move their actives from their own balances and to walk around regulation requirements to restrict volumes of their actives in relation to their own capitals. This was achieved with invention of ABS (asset-backed security) which is a financial instrument aggregating many loans given by a bank to various clients. So, using the language of math it’s a first derivative of a loan. But then a second derivative was invented (CDO), which would aggregate a few ABS, which aggregate a set of loans (in the house that Jack built...). Then a third derivative (CDO2), and so on. But what is true in math appeared the same true in finance: the higher order of derivative you have the less you can say about initial function/assets. But these papers were sold by banks to each other or were used as a security or pledge for another loan, thus spreading around and creating a chain of dependencies on the same initial asset or set of assets (loans).
And then the crisis of 2007-2008 happened. It was enough for a large group of mortgage borrowers to fail in order to cause a domino effect when dependent actives appeared to be of no value. In this situation an American government had to go further and to introduce measures even wider than ones introduced a century ago. To stop a collapse of the entire financial system they had to announce guarantees for those derivatives, effectively paying to their holders.
But what happened next? More elaborated and complicated regulations followed. They made banks to have dedicated departments which only task was to reconcile the bank's activity with these regulations. But it didn't remove the source of the problem. The same tricks are still possible and allowed, just became more complicated. And big banks are almost completely protected against insolvency because they are systemically important. Which effectively opens for them all doors and allows any risk. Also, such guarantees work in fact as public subsidies creating unequal conditions for big and smaller banks. Another problem, more conceptual, is that systematic suppression of risk creates eventually even higher risk. The bubble is growing bigger and bigger.
Then the authors suggest making a step back and revising what the main purpose of the banking was and if we still need banks for that purpose. And out of a sudden it seems that the same function can be carried out now differently. The same information technologies can fill the old gap between lenders and borrowers. There are online platforms which allow direct investments or loans. A credit history of a company or a person can be checked automatically these days. And also, the owners of these platforms provide check and consultancy services without offering banking services, which means without serving deposits and without giving loans. The problem of liquidity of assets and immediate access to money (like with purchases payed by a debit card) is solved with trading bots which can sell a person's share in some loan online just in milliseconds. And there are many other nuances which I'm not going to mention here but which, in the authors words, allow using absolutely the same 'interface' as the traditional banking uses but which is implemented absolutely different.
So, then what to do with banks? The authors underline that existing regulations attempt mostly to restrict risky operations. Those regulations try to define which operation is risky and in which situations and they just get stuck in a swamp of multidimensional, multivariable system with many 'ifs’'. Whereas they, authors, suggest looking to the root of the banking: to the old good balance sheet with assets and liabilities. And they offer to introduce just a single rule, a 'system solvency rule': the value of the organization’s real assets should be higher than or equal to the volume of the organization’s liabilities in the worst financial condition. Here real assets are all non-financial assets like equipment, hardware, patents, etc. And the worst financial condition roughly speaking happens when an organization has to pay out all debts. This rule is applicable for all types of organizations. It doesn't create any problem for the real sector of economy, for companies creating goods and services: in most cases they comply to this rule. But the rule effectively forbids financing loans with loans (in case of traditional banks, with money borrowed from clients, i.e. from deposits). Thus, it forbids banking. Because it requires securing loans only with own capital. But it does not kill lending per se. It just allows direct lending, without mediators. Like earlier mentioned online platforms for direct lending/investments.
Then the book shows a brave new world without banking. It focuses much on how it will impact the public monetary policies. And here I was a bit stuck. It was like to discover for myself the physics of atom: how a state operate with money on a level of their cost, that in order to have stable prices the state makes us to pay for using money and at the same time pays us (injects money to the economy).
Like I said in the beginning, the book doesn't share any hint on how to implement such retreat from banking in real life. Yes, it's obvious that it's a very difficult task. For example, what to do with billions of existing loans and deposits? They can't be canceled overnight since no bank has enough capital to return money to all depositors, and no borrower is able to repay a loan at any arbitrary time before a final date. So either banks should stop borrowing/lending but still continue to work until the last cent will be paid (but it's like to stop fueling an engine, it will just stop working) or some super bank (apparently a public bank) should buy all loans and deposits and to take care of a soft landing of the banking system. But this also looks like an immense weight for a state. Another problem is people: employees, a giant army of financiers, lawyers, IT, software engineers, etc. Not to mention a huge cloud of related businesses around. It's a big sector of economy.
While reading I was thinking that gradual retreat from banking must happen naturally as soon as loan/trading platforms will prove to be easy to use, more profitable, less risky, and not to be a subject to chain reactions on financial markets. Clients will vote with money. But the authors claim that the opposite is happening now: such platforms launch banking services in parallel to the initial role of a ‘stateless protocol’ of communication between lenders and borrowers.
But although the scale of this problem is very clear even for such an inexperienced reader as myself, it should be not only clear to the authors of the book, but they definitely must have some vision how such a transition from banking to no-banking could be facilitated, however crazy that vision would be. It sounds like utopia anyway, so why not to unleash all the most daring fantasies?
Otherwise it’s a very good book. Very specific, concise, and with things called with their real names.
June 27, 2019
Reduce banking into pieces
The strength of this book is also its weakness: it is quite good at reducing all complexity of modern structured finance into simple concepts with a cristal vision of what is important and what is not. The first half of the book is exactly that: a very good overview of what was wrong that led to the subprime crisis of 2007-2008. What comes next is not so good: the authors (there are two of them hidden behind the pseudonym) attempt to propose a new financial order where banking is abolished by decree. So it is not that the book deals with how new technologies are displacing traditional banks (as someone could inadvertently assume from the book's title) but how should governments force the world into an old-fashioned "banking is forbidden" world. No matter how interesting their summary of banking in the first half of the book could be, it is still a simplification that by no means could not be used to be the foundation for such a huge proposal. But it is not even that made me stay at 2 stars, I think what was really frustrating is that the ideas defended by the authors are not even revolutionary: on the contrary, they seem to me an oversimplified prescription of heavy regulation on financial markets. The problem (as the authors also admit) is that, as in nature, financial markets "find their way"... So the proposals here end up as any utopia, a extremely crafted equilibrium that cannot last forever...
The strength of this book is also its weakness: it is quite good at reducing all complexity of modern structured finance into simple concepts with a cristal vision of what is important and what is not. The first half of the book is exactly that: a very good overview of what was wrong that led to the subprime crisis of 2007-2008. What comes next is not so good: the authors (there are two of them hidden behind the pseudonym) attempt to propose a new financial order where banking is abolished by decree. So it is not that the book deals with how new technologies are displacing traditional banks (as someone could inadvertently assume from the book's title) but how should governments force the world into an old-fashioned "banking is forbidden" world. No matter how interesting their summary of banking in the first half of the book could be, it is still a simplification that by no means could not be used to be the foundation for such a huge proposal. But it is not even that made me stay at 2 stars, I think what was really frustrating is that the ideas defended by the authors are not even revolutionary: on the contrary, they seem to me an oversimplified prescription of heavy regulation on financial markets. The problem (as the authors also admit) is that, as in nature, financial markets "find their way"... So the proposals here end up as any utopia, a extremely crafted equilibrium that cannot last forever...
March 3, 2015
With one book, I understood the essence of banking, the fundamental problem of banking, and how it could be solved once and for all. Clear, rational, and free of ideology, it takes you straight to the core of the problem which turns out not to be that complicated once you grasp it. If you work in a bank, you should probably read it now. I must admit, I am a fan, and I highly recommend this book to everyone!
The only thing is that the book may be too clever to achieve its aim. Since the author does not rely on any exaggerated imagery or blunt argument, it may not draw a the political following that it deserves. Therefore, I hope that enough smart people read it, who are attracted by its sharpness and enjoy to base their political views on rational arguments. That way, we will perhaps see one day the necessary political force to really establish alternatives to banking.
Certainly, one of the most important books I have read in my life.
The only thing is that the book may be too clever to achieve its aim. Since the author does not rely on any exaggerated imagery or blunt argument, it may not draw a the political following that it deserves. Therefore, I hope that enough smart people read it, who are attracted by its sharpness and enjoy to base their political views on rational arguments. That way, we will perhaps see one day the necessary political force to really establish alternatives to banking.
Certainly, one of the most important books I have read in my life.
April 6, 2015
The books has two core functions, the first one of describing how banking works; it achieve this marvellously with simple and clear definitions. The second one of prescribing how a financial system without banking would look like is very thought provoking. The model would be more conservative, but could eventually get rid of the major banking problem: bank runs.
November 3, 2018
Fascinating read! I enjoyed the first part most where the mechanics of traditional banking and shadow banking are explained. The last part presents a radical solution to end banking, the feasibility of which I wasn't able to judge as a layman, and while it ringed logical I am not taking it at face value.
I didn't like the excessive amount of long foot notes, which I thought would have been better embedded in the main text.
I didn't like the excessive amount of long foot notes, which I thought would have been better embedded in the main text.
March 6, 2019
I'm now reading this book for the second time because there's just so much to learn from it. It's really not getting the attention it deserves for how good it is, though I think I know why.
This book differs from a lot of other popular books about finance and the financial crisis in that it doesn't try to dumb down important concepts. It doesn't shy away from somewhat technical language and a bit of math, when they add clarity.
This is not a book you can breeze through. It's going to be a slow read, and you will have to pause a lot to really think through the concepts and arguments. In the end your head is going to hurt, but it's going to be worth it, because now you will actually understand the concepts that you thought you understood but not really, like money, credit, banking, etc. You will also get a healthy dose of skepticism towards the status quo and question why banking needs to exist in the first place (hint: it doesn't), and why it has to be the case that economy works in cycles and every once in a while we all have to suffer through yet another recession (hint: we don't).
I sincerely look forward to more work from Jonathan McMillan (which is a pseudonym), especially with consideration to the recent emergence of distributed ledger technologies (i.e. blockchains), which I think have the potential to realize a lot of the ideas put forward in this book.
This book differs from a lot of other popular books about finance and the financial crisis in that it doesn't try to dumb down important concepts. It doesn't shy away from somewhat technical language and a bit of math, when they add clarity.
This is not a book you can breeze through. It's going to be a slow read, and you will have to pause a lot to really think through the concepts and arguments. In the end your head is going to hurt, but it's going to be worth it, because now you will actually understand the concepts that you thought you understood but not really, like money, credit, banking, etc. You will also get a healthy dose of skepticism towards the status quo and question why banking needs to exist in the first place (hint: it doesn't), and why it has to be the case that economy works in cycles and every once in a while we all have to suffer through yet another recession (hint: we don't).
I sincerely look forward to more work from Jonathan McMillan (which is a pseudonym), especially with consideration to the recent emergence of distributed ledger technologies (i.e. blockchains), which I think have the potential to realize a lot of the ideas put forward in this book.
December 7, 2014
Ich habe 'The End of Banking' als 'Nicht-Akademiker' mit Bedenken in Angriff genommen. Ich befürchtete, dass es ein für Insider geschriebenes Fachbuch sein würde.
Weit gefehlt, ich war überrascht über die verständliche Sprache, die durchgehende Storyline und die gut gewählten Beispiele die die Aussagen der Autoren veranschaulichen. Das Buch ist spannend zu lesen. Es gibt einen ausgezeichneten Abriss über die (Fehl)Entwicklungen des Banking und dessen systemimanente Mängel die zu regelmässigen Bankenkrisen führen.
Im zweiten Teil zeigen die Autoren Lösungsansätze auf die überzeugen und machbar erscheinen. In den nächsten Jahren werden sich die Geschäftsmodelle der Finanzindustrie grundlegend verändern (auch wenn der Widerstand der Branche beträchtlich sein wird...)
Weit gefehlt, ich war überrascht über die verständliche Sprache, die durchgehende Storyline und die gut gewählten Beispiele die die Aussagen der Autoren veranschaulichen. Das Buch ist spannend zu lesen. Es gibt einen ausgezeichneten Abriss über die (Fehl)Entwicklungen des Banking und dessen systemimanente Mängel die zu regelmässigen Bankenkrisen führen.
Im zweiten Teil zeigen die Autoren Lösungsansätze auf die überzeugen und machbar erscheinen. In den nächsten Jahren werden sich die Geschäftsmodelle der Finanzindustrie grundlegend verändern (auch wenn der Widerstand der Branche beträchtlich sein wird...)
February 6, 2017
This is a very interesting book that everybody should read. Especially for economists and politicans it should be a must, but the book is good explained so everybody can read it. It gives an answer to so many questions I had about banks.
September 10, 2018
O livro explica inicialmente o funcionamento das atividades bancárias tradicionais na era industrial, mostrando o porquê delas terem sido um sucesso ao possibilitar a expansão de crédito necessária para a industrialização. Em seguida, explica como a tecnologia da informação levou à explosão das atividades bancárias paralelas na era digital, esclarece como elas funcionam e porquê são essencialmente prejudiciais à sociedade. Por fim, os autores sugerem um novo sistema financeiro - sem atividades bancárias, sem moeda interna (substituída por moedas digitais e algoritmos de transação), sem liquidez contratual (mas com liquidez de mercado), uma contabilidade sem o método das partidas dobradas (e sim baseada em uma norma de solvência técnica atualizada, que resolve o problema de fronteira de regulação) e um setor público que, no âmbito financeiro, volta-se exclusivamente à política monetária e se abstém de garantir o crédito (que fica exclusivamente com a esfera privada).
Nâo obstante se tratar de um tema de natureza complexa, os autores se esforçam para embasar o leitor com o necessário para o completo entendimento do texto - definem cada termo com esmero, fazem referências históricas e se extendem até onde necessário em suas argumentações. Seu novo sistema financeiro proposto me parece muito mais adequado aos nossos tempos do que o que estamos tradicionalmente acostumados, pois proporciona maior estabilidade e menores custos à sociedade. Por mais que ele proponha muitas mudanças essenciais, é surpreendente como as interações econômicas podem permanecer muito semelhantes em sua superfície. Apesar de ser uma idéia brilhante, seria dificilmente aplicável num futuro próximo, pois mexe com inúmeros interesses e promove muita incerteza no mercado. Acredito que mereça ser mais profundamente estudada, em especial como implantá-la - o que não é tratado pelos autores. A próxima grande crise econômica mundial poderá ser a grande oportunidade e a força impulsionadora necessária para colocar tudo em prática.
Nâo obstante se tratar de um tema de natureza complexa, os autores se esforçam para embasar o leitor com o necessário para o completo entendimento do texto - definem cada termo com esmero, fazem referências históricas e se extendem até onde necessário em suas argumentações. Seu novo sistema financeiro proposto me parece muito mais adequado aos nossos tempos do que o que estamos tradicionalmente acostumados, pois proporciona maior estabilidade e menores custos à sociedade. Por mais que ele proponha muitas mudanças essenciais, é surpreendente como as interações econômicas podem permanecer muito semelhantes em sua superfície. Apesar de ser uma idéia brilhante, seria dificilmente aplicável num futuro próximo, pois mexe com inúmeros interesses e promove muita incerteza no mercado. Acredito que mereça ser mais profundamente estudada, em especial como implantá-la - o que não é tratado pelos autores. A próxima grande crise econômica mundial poderá ser a grande oportunidade e a força impulsionadora necessária para colocar tudo em prática.
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August 5, 2020I read The End of Banking with some strong prejudice. While I feel that some of my reservations were justified and maybe amplified, I do think it is a valuable book. In some ways, it provides a more granular and modern interpretation of what monetary reformers have been promoting all along: get banks out of the business of creating money. While I couldn’t absorb some of the concepts and financial gyrations described in the book, they do a good job of making the distinction between credit and money and how the two are horribly and inappropriately scrambled in our current system.
The one boogie man that haunts monetary reform of any variety has been the rise of shadow banking - the ability to twist credit so as to function as money (payment) that is completely immune from banking regulations (hence the GFC). The authors address this head on and provide monetary reformers with a response to naysayers who often resort to the dismissive claim, “what about shadow banking?”
Having said this, the authors, as do so many others even among monetary reformers, focus almost entirely on stability. They essentially dismiss the use of publicly created money for public purpose spending. The concept of demurrage (they call it a "liquidity fee”) to force people to either spend or lend their money but not to hoard it, is fine. The concept of balancing that fee charged on saving money by providing a very modest universal payment to all citizens makes sense (although it sounds highly regressive). The problem is all priorities surrounding the use of money are left to the private sector. Government can only create money to distribute evenly and the god of capitalism will look over us. There is a cynicism with respect to the role of government that I, as a leftist, find objectionable. (It will probably appeal to the libertarians among us.)
Again, I highly recommend reading the book for it does strip away the superficial appearance of how the money system works to reveal what’s really going on under the hood.
The one boogie man that haunts monetary reform of any variety has been the rise of shadow banking - the ability to twist credit so as to function as money (payment) that is completely immune from banking regulations (hence the GFC). The authors address this head on and provide monetary reformers with a response to naysayers who often resort to the dismissive claim, “what about shadow banking?”
Having said this, the authors, as do so many others even among monetary reformers, focus almost entirely on stability. They essentially dismiss the use of publicly created money for public purpose spending. The concept of demurrage (they call it a "liquidity fee”) to force people to either spend or lend their money but not to hoard it, is fine. The concept of balancing that fee charged on saving money by providing a very modest universal payment to all citizens makes sense (although it sounds highly regressive). The problem is all priorities surrounding the use of money are left to the private sector. Government can only create money to distribute evenly and the god of capitalism will look over us. There is a cynicism with respect to the role of government that I, as a leftist, find objectionable. (It will probably appeal to the libertarians among us.)
Again, I highly recommend reading the book for it does strip away the superficial appearance of how the money system works to reveal what’s really going on under the hood.
July 24, 2020
McMillan brings up a number of interesting ideas regarding disintermediation, particularly via peer lending platforms, in his condemnation of traditional banking. He does well to steer clear of high-finance vernacular, intending to make the book accessible to a wider audience, despite navigating esoteric subjects like CDO^2 structuring and ABCP treatment in double-entry accounting. In the end, his suggestions come across as somewhat fanciful. While disintermediation is theoretically possible with current IT capacity, it rests on the ability to develop a network of reliable custodians (similar to RIAs) who manage clients accounts across a slew of credit investments, providing liquidity and seeking crowd-sourced funding when necessary. It requires the development of a powerful new breed of ratings agencies willing to run the platforms, ignoring that current RA models incorporate both quantitative and qualitative overlays-- and that the largest ratings agencies, with billions of dollars at their disposal, are unable or unwilling to extend coverage to small businesses, micro-lending to entrepreneurs, or similar ventures. The idea of sufficient reviews to establish reputational assets in the space is rather far-sighted, given the inability of smaller RA's to impinge on the mature markets for corporate issuance in the last 80 years. Moreover, it depends on some level of bureaucratic altruism at the highest levels of government-- since his plan for monetary policy outright prevents seignorage and crony capitalism. There are certainly elements of McMillan's ideas that make sense, but the pathway (understandably not expounded upon) to any semblance of it is fraught with peril. As a treatise on the flaws of modern banking, it's certainly adequate. I was, unfortunately, hoping for something more comprehensive on the role of NBFI's or perhaps asset-lite intermediaries like PayPal or "Marcus."
February 1, 2020
Առաջին հայացքից հանրամատչելի թվացող այս գիրքն, իրականում տնտեսագետների, ավելին, բանկային ոլորտի աշխատողների համար է։ Եթե դուք հումանիտար կրթություն ունեք, ապա խորհրուրդ եմ տալիս կարդալ 10 գլուխներից առաջին երեքը և վերջին գլուխն ու եզրակացությունը։ 3-9 գլուխներում անհավանական բանկային բառապաշարով օպերացիոն համակարգերի, բանկային պատմության զարգմացման մասին է, որ պետք է կարդալ շատ ուշադիր, թուղթ ու գրիչով, անընդհատ վերադառնալ, որ հիշել հապավումները։ Մի խոսքով, էդքանի փոխարեն, ուղղակի մի կարդացեք։
Իսկ ընդհանուր, գրքի փիլիսոփայությունը շատ պարզ է. բանկային համակարգն այնքան է զարգացել, որ այն դա��ձել է տոկսիկ հենց տնտեսության համար։ 2007-2008 թվականների ճգնաժամը դրա լավագույն ապացույցն էր։ Եվ հիմա ժամանակն է վարկավորումը, փողերի կառավարումը և ֆինանսական գործարքները առանձնացնել։ Դրանից կշահի քաղաքացին և պետությունը։
Հասկանալի է, որ այս առաջարկը շոշափելի ապագայում դժվար կյանքի կոչվի, բայց դրա վերափոխված իդեաներն այսպես թե այնպես այսօր էլ կյանքի են կոչվում։ Դրանցից է օրինակ կրիպտոարժույթի առաջացումն ու առաջխաղացումը։
Իսկ ընդհանուր, գրքի փիլիսոփայությունը շատ պարզ է. բանկային համակարգն այնքան է զարգացել, որ այն դա��ձել է տոկսիկ հենց տնտեսության համար։ 2007-2008 թվականների ճգնաժամը դրա լավագույն ապացույցն էր։ Եվ հիմա ժամանակն է վարկավորումը, փողերի կառավարումը և ֆինանսական գործարքները առանձնացնել։ Դրանից կշահի քաղաքացին և պետությունը։
Հասկանալի է, որ այս առաջարկը շոշափելի ապագայում դժվար կյանքի կոչվի, բայց դրա վերափոխված իդեաներն այսպես թե այնպես այսօր էլ կյանքի են կոչվում։ Դրանցից է օրինակ կրիպտոարժույթի առաջացումն ու առաջխաղացումը։
July 16, 2021
“The transition to a financial system without banking might be a rocky road. For sure, it will involve uncertainty”
“Uncertainty” is probably the word that better describes this proposal to transform the way the financial system has worked for centuries. The book explains extensively and with illustrative examples the difference between outside money and inside money, as well as the way the last one is created and how it can be dangerous for the economy. In my personal opinion, in its quest to radically change the financial system as we know it today and to end banking (the creation of money out of credit), it includes some ideas more typical of a utopian world. Nevertheless, it is still an opportunity to reflect on the weaknesses of “banking” and an invitation to think about ways to improve it through the new digital tools we have at our fingertips.
I would recommend this book for those who want to better understand the different roles of private and public actors in the functioning of the economy.
“Uncertainty” is probably the word that better describes this proposal to transform the way the financial system has worked for centuries. The book explains extensively and with illustrative examples the difference between outside money and inside money, as well as the way the last one is created and how it can be dangerous for the economy. In my personal opinion, in its quest to radically change the financial system as we know it today and to end banking (the creation of money out of credit), it includes some ideas more typical of a utopian world. Nevertheless, it is still an opportunity to reflect on the weaknesses of “banking” and an invitation to think about ways to improve it through the new digital tools we have at our fingertips.
I would recommend this book for those who want to better understand the different roles of private and public actors in the functioning of the economy.
November 4, 2020
I have read several books about the 2007-8 financial crisis,including a documentary about it. some try to blame the greedy investment bankers, some put fault on bank regulators, and others think the global slut in capital caused by high saving countries is the fundamental cause of this crisis. but this book tells us that it is inherent in the design of our banking system. banks create money out of credit, which together forms the price that coordinates the real economic activities. the setup of regulation for industrial age banking is no longer effective in the face of information technology, as is shown by the rampant shadow banking before the crisis. however, the information technology also provides us with the opportunity to build a new banking system, disintemediated, that is, without banks.
August 1, 2018
En primera instancia una explicación de lo básico a lo "interesante", pero suficiente, para comprender los grandes males que lleva asociados la, actualmente, mayoría de la banca (es decir, cómo funciona la banca básica). Luego se plantean soluciones justificadas que, por lo menos en principio ya que no soy experto en la materia, parecen satisfacer los requisitos técnicos para hacerla funcionar (solucionando los problemas actuales) satisfactoriamente. Un libro muy interesante si no te importa meterte en niveles técnicos de la materia.
May 13, 2020
Part 1 and 2 are really solid and good.
Part 3, however, is the most important one and I felt a bit let down.
The authors introduce a solution (great) however the idea is to change double bookkeeping at a super profound level. They have a simple solution to a complicated problem but the simple solution's effect is a bit hard to understand.
The last chapter is about separating government and private money a distinction I honestly did not understand.
4 stars because really part 1 & 2 are pretty good.
I wich the author spent more time in part 3.
Part 3, however, is the most important one and I felt a bit let down.
The authors introduce a solution (great) however the idea is to change double bookkeeping at a super profound level. They have a simple solution to a complicated problem but the simple solution's effect is a bit hard to understand.
The last chapter is about separating government and private money a distinction I honestly did not understand.
4 stars because really part 1 & 2 are pretty good.
I wich the author spent more time in part 3.
January 2, 2021
Livro ótimo. Ensina muito sobre a atividade bancária que tomou proporções gigantescas sobre a economia como um todo no mundo inteiro. Faz uma dura crítica à sua atuação que, segundo os autores, nesse ritmo descontrolado caminha para novas crises como observada em 2007-08.
Gostei demais da parte que destrincha bastante sobre a razão de ser dos bancos e como se chegou até aqui e a regulação. Não tenho condições de avaliar se as propostas dos autores são realmente aplicáveis.
Como o livro é de 2014, faltou um pouco mais sobre Fintechs e seu impacto sobre a indústria bancária. Esse elemento, na minha opinião, não era tão presente em 2014 como hoje, apesar da já existirem.
Gostei demais da parte que destrincha bastante sobre a razão de ser dos bancos e como se chegou até aqui e a regulação. Não tenho condições de avaliar se as propostas dos autores são realmente aplicáveis.
Como o livro é de 2014, faltou um pouco mais sobre Fintechs e seu impacto sobre a indústria bancária. Esse elemento, na minha opinião, não era tão presente em 2014 como hoje, apesar da já existirem.
August 14, 2017
I reviewed this book, or rather a pamphlet, for a book publisher. I have to say that the main promise is captivating and grand - getting rid of banking forever would certainly have its advantages. However, the authors provide no method of implemeting it. Granted, they say so at the beginning of the book but still, it feels unfinished, they could have done some research into Bernie Sanders's campaign which seeked to at least curb banking and to break up "too big to fail" banks.
January 9, 2018
Being a former banker I definitely share author's view on inefficiency of traditional financial institutions. Luck of innovation, greediness, being self centered versus being customer focused are among many of disadvantages of traditional banks. The book does really good job spreading light on major problems that face banks and regulators in 21st century, but it lacks battle tested and data driven suggestions how to overcome those issues.
January 14, 2020
Тема очень интересная.
Автор сделал попытку написать короткую историю кризиса в денежном и кредитном обращении с фокусом на 2007-2008 годы и высказал ряд идей как постараться избежать таких кризисов в будущем.
Как по мне, правильные оценки прошлого не привели к правильным оценкам на будущее.
Слишком много если и слишком мало опоры на анализ потенциальных движений тех или иных заинтересованных лиц. Иначе говоря, так просто как описывает автор, банки в историю не уйдут.
Автор сделал попытку написать короткую историю кризиса в денежном и кредитном обращении с фокусом на 2007-2008 годы и высказал ряд идей как постараться избежать таких кризисов в будущем.
Как по мне, правильные оценки прошлого не привели к правильным оценкам на будущее.
Слишком много если и слишком мало опоры на анализ потенциальных движений тех или иных заинтересованных лиц. Иначе говоря, так просто как описывает автор, банки в историю не уйдут.
October 16, 2019
Amazing historical description of banking, and the details about how the digital age changed banking are laid out clearly and compellingly. However, their proposal to end banking could use a more in-depth analysis and deserves probably an entire book by itself.
November 21, 2019
The book The End of Banking: Money , Credit and The Digital Revolution by Jonathan McMillan is written as a response to issues that surfaced in the 2007-2008 financial crisis. In three sections, the author discusses banking in the industrial age, banking in the digital age, and lastly, suggests a financial system for the digital age. The first section is a review of why economies need banking and its mechanics, as well as problems of banking (bank runs, moral hazards). In the second section, the author discusses the rise of shadow banking (facilitated, in the author’s view by the emergence of information technology), the boundary problem of financial regulation and techniques used within banking (pooling, structuring and securitization). In the last section, that author postulates about a financial system without banking, meaning a system without inside money (money created in the form of bank deposits). This represents a change in the wiring of the financial system, not necessarily the interface of the system. This last section is an interesting thought experiment, which upon first reading was difficult for me to comprehend. They explicitly state that the book does not cover how a banking system would transition to a financial system without banking.
July 4, 2020
Muy ilustrativo con respecto a la historia de la banca y cómo se ha distorsionado su desempeño en la historia, así como también el papel jugado por el gobierno, sin embargo los ejemplos podrían ser un poco más ilustrativos.
September 30, 2020
Excellent book! Fully explains the inner working of the banking system as it currently exists, and proposes a model sans systemic financial risk that could work in the digital age. I really appreciated the visionary aspect of this book and clearly defined banking terms. Would highly recommend.
June 4, 2021
I really enjoyed reading the first parts of the book, where the terms in banking are defined clearly and I got a much better understanding about how banks work.
The later half where author proposes his ideas got a little confusing and it's not clear if that even works.
The later half where author proposes his ideas got a little confusing and it's not clear if that even works.
December 3, 2021
Thought provoking and good deconstruction of the basic principles of banking. Worth the read for anyone interested in banking system. Not great writing, but easy to read. Second half book was the reason it didnt get 4 stars
March 20, 2017
Insightful view of the evolution of banking
A quick and fascinating view of the evolution of banking for those that are not familiar with the banking business.
A quick and fascinating view of the evolution of banking for those that are not familiar with the banking business.
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